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

91-day t-bills, 91-Day T-Bills Starting from July, 1965, 91-day T-bills...

91-Day T-Bills Starting from July, 1965, 91-day T-bills were issued at a discount rate ranging from 2.5-4.6 percent per annum. Till July, 1974, the discount rate was 4.6 percen

Valuing an option-free bond, To value an option-free bond, we must de...

To value an option-free bond, we must determine the on-the-run yield curve for the particular issuer whose bond we have to value. This on-the-run yield curve used

Types of mutual funds, Types of Mutual Funds The objectives of a Mutual...

Types of Mutual Funds The objectives of a Mutual Fund are as follows: To provide an opportunity for lower income groups to acquire property without much difficulty in the

Baumol sales max theory, critically appraise baumol max. theory as an alter...

critically appraise baumol max. theory as an alternative objective of the firm

Explain pro forma financial statements management goals, Explain how manage...

Explain how management goals are incorporated into pro forma financial statements. Management put a target goal and forecasters makes pro forma financial statements under the

London interbank offered rate (libor), London Interbank Offered Rate (LIBOR...

London Interbank Offered Rate (LIBOR) This is the base lending rate which is charged by banks in the London Eurocurrency market. LIBOR is the European equivalent of the U.S. pr

Federal funds rate, Federal Funds Rate The interest rate that Amer...

Federal Funds Rate The interest rate that American banks that have funds in excess of the needs dictated by the Federal Reserve use to make overnight loans to banks whose

Consequence of the cash operating cycle, Q. Consequence of the cash operati...

Q. Consequence of the cash operating cycle? The cash operating cycle is the length of time among paying trade payables and receiving cash from receivables. It is able to be cal

Assignment, I should write assignment on financial management ,but have no ...

I should write assignment on financial management ,but have no idea how to start and how to develop. Please help me

What is an audit?, Question 1 What is Depreciation? Question 2 What a...

Question 1 What is Depreciation? Question 2 What are the elements of an accounting system? Question 3 How do you prepare Flexible Budget? Question 4 Briefly explain

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