the overall market. What is the beta of stock B? Please interpret what this beta measure represents relative to the beta of the market. What is the difference between systematic and unsystematic risk? Be sure to mention which is diversifiable risk and non-diversifiable risk. 2. Year A 0 -400‚000 1 55‚000 2 55‚000 3 55‚000 4 225‚000 5 225‚000 The discount rate is 10%. These are independent projects. a) b) c) d) How long does each project take to payback on a nominal basis
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CHAPTER 6 RISK‚ RETURN‚ AND THE CAPITAL ASSET PRICING MODEL True/False Easy: | |(6.2) Payoff matrix |Answer: a |EASY | |[i]. |A payoff matrix shows the set of possible rates of return on an investment‚ along with their probabilities of occurrence‚ and the | | |investment’s expected rate of return as found by multiplying each outcome or "state" by its probability.
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Finance and Growth Strategies QUESTION 1 a) Distinguish between systematic and unsystematic risk. as the only relevant risk and why? b) In the context of the Capital Asset Pricing Model how would you define beta? How are betas determined and where can they be obtained? limitations of betas? c) What information does beta give to a financial manager? What are the Which is often regarded QUESTION 2 a) What is the time value of money? flows? b) What factors need to be taken into account when choosing
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Week 7 Chapter 6: Investors in the Share Market True/False QUESTIONS 1. Investing in shares of publicly listed corporations should‚ on average‚ over time provide a higher return than investing in fixed-interest securities. a. True b. False 2. Investments through a stock exchange are limited to ordinary shares issued by listed corporations. a. True b. False 3. Portfolio theory contends that a diversified share portfolio enables an investor to significantly reduce the portfolio’s exposure to systematic
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ratio and the Treynor ratio is the use of beta instead of standard deviation as the measurement of risk / volatility. Point to Remember: A completely or totally diversified portfolio of securities is the one which reduces its unsystematic risk (diversifiable risk) to zero. Thus‚ for a totally diversified portfolio‚ the total risk associated with the portfolio is just the systematic risk or the undiversified risk. Total risk of diversified portfolio = Systematic Risk ( Beta) Therefore for well diversified
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Homework ES 1. (TCO 8) The historical returns on large-company stocks‚ as reported by Ibbotson and Sinquefield‚ are based on: (Points : 3) the largest 20 percent of the stocks traded on the NYSE. the stocks of the largest 10 percent of the publicly traded firms in the U.S. all of the stocks listed on the NYSE. the stocks of the 500 companies included in the S&P 500 index. 2. (TCO 8) If the financial markets are efficient‚ then: (Points : 3)
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Name: ID: Principles of Risk Management and Insurance Assignment 1 (Due 4/30/2012) Please write your answers on a separate sheet of paper. 1. Managers may have incentives to take action that benefit themselves at the expense of the shareholders. What factors give them incentives to act consistently with shareholder value maximization? 2. Describe the most important components of the cost of risk that apply to the risk of shoplifting at a convenience store
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1- Starting to invest early for retirement reduces the benefits of compound interest. a. True b. False b 2- How much would $1‚ growing at 3.5% per year‚ be worth after 75 years? a. $12.54 b. $13.20 c. $13.86 d. $14.55 e. $15.28 b 3- How much would $20‚000 due in 50 years be worth today if the discount rate were 7.5%? a. $438.03 b. $461.08 c. $485.35 d. $510.89 e. $537.78 e
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1 [5 points]: You wish to borrow $10‚000 from your bank for one year. Which alternative shall you choose? (a) 4.25% APR compound quarterly (b) 4.25% EAR Question 2 [5 points]: Identify each of the following risks as either systematic risk or diversifiable risk: (a) The risk that the CEO of your firm is killed in a plane accident (b) The risk that the economy slows‚ decreasing demand for your firm’s products (c) The risk that your best employees will be hired away (d) The risk that the new product
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CHAPTER 11: THE COST OF CAPITAL LEARNING GOALS: 1. Understand the key assumptions‚ the basic concept and the specific sources of capital associated with the cost of capital. 2. Determine the cost of long-term debt and the cost of preferred stock. 3. Calculate the cost of common stock equity and convert it into the cost of retained earnings and the cost of new issues of common stock. 4. Calculate the weighted average cost of capital (WACC) and discuss alternative weighing schemes
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