Distinguish between diversifiable and non-diversifiable risk, Financial Management

Assignment Help:

Question:

(a) An efficient financial market is assumed to hold under the Capital Asset Pricing Model (CAPM). What is the main hypothesis of an efficient financial market?

(b) Define the three forms of market efficiency.

(c) Distinguish between diversifiable risk and non-diversifiable risk.

(d) You are the portfolio manager at Peacock Funds Ltd. You are considering purchasing the equity shares of Swan Ltd. The current price per share of Swan Ltd. is Rs 40. You expect the dividend per share to be Rs 4 and the market price per share of Swan Ltd. at the end of the year to have the following probability distributions:

651_Distinguish between diversifiable risk and non-diversifiable risk.png

What is the expected return if Rs 4000 is invested in the shares of Swan Ltd?

(e) The rate of return on Treasury Bills is 4 percent and the market risk premium is 8 percent. Using the CAPM model, calculate beta (β) if investors require a 10 per cent rate of return on common stocks.


Related Discussions:- Distinguish between diversifiable and non-diversifiable risk

Social responsibility-business ethics-business entity, Social responsibilit...

Social responsibility The firm must decide whether to operate strictly in their shareholders' best interests or be responsible to their employers, their customers, and the soc

Break even period, It is also important to compare the returns from t...

It is also important to compare the returns from the equity stock and the bond to determine the profitability of both investments. We have seen above that the div

Bond Valuation, The Pennington Corporation issued a new series of bonds on ...

The Pennington Corporation issued a new series of bonds on January 1, 1979. The bonds were sold at par ($1,000), have a 12 percent coupon, and mature in 30 years, on December 31,

Describe working capital decision, Q. Describe Working Capital Decision? ...

Q. Describe Working Capital Decision? Working Capital Decision: - It is anxious with the management of current assets. It is a significant function of financial management. Cur

How could we project exchange rates, How could we project exchange rates in...

How could we project exchange rates in order to be able to forecast exchange differences? If someone knew how to predict exchange rates, they would be a millionaire and would n

How do flotation costs affect cost of raising that capital, When a company ...

When a company issues new securities, how do flotation costs affect the cost of raising that capital? When a company issues fresh securities flotation costs, enhance the cost o

ABF, HOW TO CALCULATE ASSESSED BANK FINANCE

HOW TO CALCULATE ASSESSED BANK FINANCE

Illustrate methods to manage cash resources, Q. Illustrate Methods to Manag...

Q. Illustrate Methods to Manage cash resources? There are several methods which may be of use in managing resources. The particular tool selected will depend on its reliability

Define moody or standard & poor credit ratings, Why do most international b...

Why do most international bonds have high Moody’s or Standard & Poor’s credit ratings? Answer:  Moody’s Investors Service and Standard & Poor’s offer credit ratings on several

Minimum bonus and maximum bonus, Question 1 Sections 42 to 50 of the Act d...

Question 1 Sections 42 to 50 of the Act deal with provisions pertaining to welfare of workers. State a few welfare measures that you would suggest in factories. List the welfare m

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd