Class Notes – Ch 7 Risk‚ Reward and the CAPM Rational investors expect returns as a reward for taking risk. Returns are usually expressed as a performance number- either as a $ return or as a percentage. Therefore we need to be able to measure the level of risk inherent in a potential investment‚ and we also need to be able to calculate the expected return for that risk. Risk is not achieving the return that is expected We measure risk by calculating variance and standard deviation – these show
Premium Investment Rate of return
has an expected return of 10% and a volatility of 20%‚ while Microsoft’s stock has a volatility of 30%. A. Given its higher volatility‚ should we expect Microsoft to have an equity cost of capital that is higher than 10%? No‚ Microsoft is diversifiable and it will not be affected by the changes in the market. We do not expect Microsoft’s equity cost of capital to be higher than 10%. Each stock carries its own weight. B. What would have to be true for Microsoft’s equity cost of capital to be
Premium Investment Stock market Bond
key model for helping in decision making regarding the selection of securities and also helps in planning the strategies. Types Of Risks – The unsystematic or the diversifiable risk is related to the haphazard causes which can be eradicated or removed with the help of diversification. Similarly the systematic or the non-diversifiable risk is related to the factors of the market which cannot be removed with the help of diversification. The permutation of both the risks is the total risk. The investors
Premium
Colombo Stock Exchange (CSE) Workshop Portfolio Management Dr. P D Nimal 6/26/2012 Prepared by P D Nimal 1 Objectives This discussion consists of: Introduction to PM Investor Behavior and Investor Objective Nature of Risk and Return Portfolio Risk and Portfolio Return Efficient Frontier Capital Market Line (CML) Components of Risk Characteristic Line (CL) Security Market Line (SML) Lessons for Investors 6/26/2012 Prepared by P D Nimal 2 Introduction to Portfolio Management
Free Financial markets Investment
MANAGEMENT Paper – III Note : This paper contains seventy fifty (75) objective type questions of two (2) marks each. All questions are compulsory. 1. Hawthorne Experiment is related to the (A) Systems theory (B) Classical theory (C) Human relations theory (D) Scientific management theory 2. Cost incurred in the past and is not affected by a current decision is referred to as : (A) Sunk cost (B) Marginal cost (C) Incremental
Premium Net present value Marketing Risk
Explanation: (Chapter 10‚ Page 327-330) Points Received: 0 of 3 Comments: 3. Question : (TCO 8) Which of the following statements is false regarding systematic risk? Select all that apply: Student Answer: INCORRECT is always diversifiable INCORRECT is the total risk associated with surprise events INCORRECT affects only a specific project or firm CORRECT is measured by standard deviation Instructor Explanation: (Chapter 11‚ Pages 347‚ 350-355) Points Received:
Premium
Homework II – Managerial Economics – Fall 2011 Each question is worth 1 point. 1. A call provision gives bondholders the right to demand‚ or "call for‚" repayment of a bond. Typically‚ calls are exercised if interest rates rise‚ because when rates rise the bondholder can get the principal amount back and reinvest it elsewhere at higher rates a. True b. False 2. Sinking funds are devices used to force companies to retire bonds on a scheduled basis prior to their maturity.
Premium Balance sheet Management Generally Accepted Accounting Principles
ICICI – A Universal Bank Presented By Under the guidance of Prof. Hemal Submission Date : 21/02/2010 ACKNOWLEDGEMENT We are greatly indeed to our honorable Prof. Hemal for all her encouragement support and facilities strength in getting this project to its present stage. Developing any project is not an easy job. It needs lots of human efforts‚ dedication and togetherness among the people involved in it. These things mean a lot only when there is strong driving force and continuous
Premium Bank Financial services Finance
2 Investor Objectives 2.1. Measuring Investor Returns We understand that firms should attempt to maximize investor wealth. But‚ while we now have a strategic goal‚ we have a little way to go before we can turn it into an action plan. Companies generate uncertain cash flows over very long time horizons; we need a way of turning these risky income streams into equivalent quantities of hard cash. We will do this in two stages. We start with a careful discussion of interest rates‚ which will enable
Premium Financial markets Investment Interest
Slide Set 1 – Investment Alternatives An investor aims to maximise their expected welfare * Return is good * Risk is bad * However‚ to get higher returns investors must take on more risk – the reason for this is because there is a premium for risk (risk return trade off) * No free lunches on wall street * Portfolios * Different asset classes * Financial assets * Paper or electronic * E.g. Stocks‚ bonds etc. *
Premium Financial markets Stock market Investment