Question

Question 1) Answer the following

1a) Which Connection does the diversification effect have to the CAPM?

1b) What is the common Risk measure in Finance? What are the shortfalls of this measure?

1c) What are the Connections between the findings in Portfolio Theory and 1) Investment / 2) Financing decisions?

Thanks so much in Advance.

Answer #1

1a) Diversification effect eliminate unsystematic risk in the CAPM which take into account Beta (calculation for systematic risk).

1b) Common risk measure in Finance are standard deviation and Beta.Standard deviation indicates how much the current return is deviating from its expected historical normal returns. whereas Beta measures the amount of systematic risk an individual security or an industrial sector has relative to the whole stock market.

Shortfalls of Beta is that stocks should be liquid i.e. traded frequently. It measure volatility of stock return with market return It can be useful for measuring short-term volatility.

Shortfalls of Standard Deviation is inappropriate measure of dispersion for skewed data.

Portfolio theories used assumptions in their workings however investment or financing decision does not.

Please answer all parts of Question 1 using the following
data:
Year
IBM’s yearly stock return
Yearly return on the S&P500
1999
17.02%
21.04%
2000
-21.21%
-9.10%
2001
13.09%
-1.89%
2002
16.22%
-22.10%
The riskless rate for this period is 3.5%, and the covariance
between returns on IBM stock and the S&P500 over this period is
0.02276.
1A. What is IBM’s arithmetic mean yearly return over this
period?
1B. What is IBM’s geometric mean yearly return over this
period?
1C....

Question 1
1a) A company has $1 billion of sales
and $50 million of net income. Its total assets are $500
million, financed half by debt and half by common
equity. What is its profit margin? What is
its ROA?
4
Sales ($M)
Net income ($M)
Total assets ($M)
Debt ratio
Profit margin
Sales ($M)
Net income ($M)
Total assets ($M)
Debt ratio
ROA
1b) A company has a profit margin of
6%, a total asset turnover ratio of 2, and an equity...

Answer the following questions as detailed as
possible:
Question #1 – Time Value of Money
Please give a detailed example from your own personal or
professional experiences (life/career) that involves the Time Value
of Money.
The Time Value of Money defined as in Chapter 4 as: Present
Value, Future Value, Present Value of an Annuity, Future Value of
an Annuity, Amortization. It can be one of these above or
multiple.
Explain the example and how this/these money valuation
tools fit...

Answer the following questions as detailed as
possible:
Question #1 – Time Value of Money
Please give an example from your own personal or professional
experiences (life/career) that involves the Time Value of
Money.
The Time Value of Money defined as in Chapter 4 as: Present
Value, Future Value, Present Value of an Annuity, Future Value of
an Annuity, Amortization.
It can be one of these above or multiple.
Explain the example and how this/these money valuation tools fit
into...

Question 1
____is the
chance of loss or the variability of returns associated with a
given asset.
Question 2
Baxter
purchased 100 shares of Sam, Inc. common stock for
$135 per
share one year ago. During the year, Sam, Inc paid
cash dividends of $6 per share. The
stock is
currently selling for $170. If
Baxter sells all his shares today, what rate of return would be
realized?
Question 3
A beta
coefficient of +1 represents an asset that…
Question...

QUESTION 1:
XYZ Inc. has 10 million shares of common stock outstanding. The
current share price is $20 per share. The most recent dividend was
$1 and the dividend growth rate is 4%.
XYZ also has a bond issue outstanding, which is maturing in 15
years, has a face value of $100 million, 7% coupon payable
annually, and sells for 83.8786% of the face value.
XYZ also has 2,000,000 preferred shares outstanding, which are
currently selling for $40 per share...

What role could the governance of ethics have played
if it had been in existence in the organization? Assess the
leadership of Enron from an ethical perspective.
THE FALL OF ENRON: A STAKEHOLDER FAILURE
Once upon a time, there was a gleaming headquarters
office tower in Houston, with a giant tilted "£"' in front, slowly
revolving in the Texas sun. The Enron Corporation, which once
ranked among the top Fortune 500 companies, collapsed in 2001 under
a mountain of debt...

Sign In
INNOVATION
Deep Change: How Operational Innovation Can Transform Your
Company
by
Michael Hammer
From the April 2004 Issue
Save
Share
8.95
In 1991, Progressive Insurance, an automobile insurer based in
Mayfield Village, Ohio, had approximately $1.3 billion in sales. By
2002, that figure had grown to $9.5 billion. What fashionable
strategies did Progressive employ to achieve sevenfold growth in
just over a decade? Was it positioned in a high-growth industry?
Hardly. Auto insurance is a mature, 100-year-old industry...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 5 minutes ago

asked 16 minutes ago

asked 19 minutes ago

asked 38 minutes ago

asked 42 minutes ago

asked 48 minutes ago

asked 56 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago