1. CORPORATE GOVERNANCE Objective of corp finance: maximize firm value. Narrower objective of maximizing stockholder wealth; when stock is traded and markets are viewed to be efficient‚ objective is to maximize stock price. A. Stockholder interests vs management interests In theory: stockholders have significant control over management. Mechanisms for discipline: Annual meeting and BOD In Practice: Most stockholders do not go to meetings since cost of going exceeds the value of their holdings; incumbernt
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Average 0.4 8.0 20.0 0.0 7.0 15.0 10.0 Above avg 0.2 8.0 35.0 -10.0 45.0 29.0 Boom 0.1 8.0 50.0 -20.0 30.0 43.0 15.0 r-hat ([pic]) 1.7% 13.8% 15.0% Std dev (σ) 0.0 13.4 18.8 15.3 Coef of var (cv) 7.9 1.4 1.0 beta (b) -0.86 0.68 *Note that the estimated returns of American Foam do not always move in the same direction as the overall economy. For example‚ when the economy is below average‚ consumers purchase fewer mattresses than they would if the economy
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with on conversations with practitioners at highly regarded on advice from best-selling textbooks and trade books. common theoretical frameworks to estimate the cost of variation‚ however‚ for the joint choices of the risk-free rate of return‚ beta and the equity market risk premium‚ as well of implementation.1 study. We revisit the issues and see what now constitutes best practice and what has changed in both academic recommendations and in practice. practice has changed some since
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Introduction to Financial Management Chapter 5 Risk and Rates of Return FIN 254 (Instructor- Saif Rahman) Introduction to Risk and Return Risk and return are the two most important attributes of an investment. Research has shown that the two are linked in the capital markets and that generally‚ higher returns can only be achieved by taking on greater risk. Risk isn’t just the potential loss of return‚ it is the potential loss of the entire investment itself (loss of
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Betas provide a convenient measure of systematic risk of the volatility of an asset relative to the market volatility. J.Choi & M.Richardson (n.d) stated that the asset volatility is time-varying and that financial leverage matters and has a large influence on equity volatility. Besides that‚ the systematic risk is defined as the probability that the financial system as a whole might become unstable‚ rather that the health of individual market participants (E.V.Murphy‚ 2012). Sometimes‚ systematic
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price over the next five years. Our findings are summarized in the following report. I. WACC Calculation To determine the WACC for this project we need to know the following; the current risk free rate‚ the market risk premium‚ and an asset beta appropriate to this project. We selected the current 30-year U.S. government bond yield of 6.61% as the appropriate comparative risk free rate. U.S. government bonds are considered risk-free investments because the likelihood that the government will
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38. You buy 300 shares of Qualitycorp for $30 per share and deposit initial margin of 50%. The next day Qualitycorp’s price drops to $25 per share. What is your actual margin? A) 50% B) 40% C) 33% D) 60% E) 25% Answer: B Difficulty: Moderate Rationale: AM = [300 ($25) - .5 (300) ($30)] / [300 ($25)] = .40 30. Assume that you purchased 200 shares of Super Performing mutual fund at a
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Final Project Ashford University Trena Mealor Dr. James Prentice August 27‚ 2012 Final Project Investing in the total stock market allows an investor to capture the return of the stock market while at the same time diversifying an investment portfolio. The easiest way to build a total stock market portfolio is with a mutual fund or an exchange traded fund. This particular portfolio is diversified with Vanguard ETF’s that were carefully chosen to seek the highest return with moderately aggressive
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4 years monthly data via a lot of article reading and group meetings. The second part in our report is about the more accurate method for return calculation -- Continuous Compound formula which refers to “Research design issues in the estimation of Beta” (Brailsford‚ Tim‚ 1997). In the third section we present the detail of calculation and outcomes following the two approaches. It consists of tables and graphs with formula and some comments. The last section of our report is the analysis of two approaches’
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of Return on the Market Portfolio given that the Expected Rate of Return on Asset "i" is 10%‚ the Risk-Free Rate is 3%‚ and the Beta (b) for Asset "i" is 1.5. b. Find the Risk-Free Rate given that the Expected Rate of Return on Asset "j" is 14%‚ the Expected Return on the Market Portfolio is 12%‚ and the Beta (b) for Asset "j" is 1.5. c. What do you think the Beta (β) of your portfolio would be if you owned half of all the stocks traded on the major exchanges? Explain. 3. In one page explain
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