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

What is exit strategy, Exit strategy Venture capitalists and other fina...

Exit strategy Venture capitalists and other financiers will negotiate an exit strategy at the point of advancing the money. The exit strategy will involve them realising their

What is performance appraisal - cost of capital, What is Performance apprai...

What is Performance appraisal - cost of capital Performance appraisal further, cost of capital framework can be used to evaluate financial performance of top management. I

Case let, This case has been framed in order to test the skills in evaluati...

This case has been framed in order to test the skills in evaluating a credit request and reaching a correct decision. Perluence International is large manufacturer

When are the financial crises occurred, When are the financial crises occur...

When are the financial crises occurred? Financial crises arise where there is a large raise in asymmetric information into financial markets. Asymmetric information arises whil

Determine the rate for computer-based central office switch, SWBT Company m...

SWBT Company must decide whether to repair a telephone company computer-based central office switch or purchase a new one. The existing switch originally cost $750,000 and is fully

Generally accepted accpunting principle or gaap, Generally Accepted Accpunt...

Generally Accepted Accpunting Principle or GAAP The American Institute of Certified Public Accountant (AICPA) elaborates financial accounting theory and commonly accepted acco

Explain exchange rate risk, Explain Exchange Rate Risk Exchange-rate ri...

Explain Exchange Rate Risk Exchange-rate risk denotes to the risk the swap bank faces from fluctuating exchange rates throughout the time it takes the bank to lay off a swap it

Show the transaction risk, Q. Show the Transaction risk? This is the ri...

Q. Show the Transaction risk? This is the risk occur on short-term foreign currency transactions that the actual income or cost may be different from the income or cost expecte

State about the country analysis and political risk, Country analysis and p...

Country analysis and political risk Country analysis could use tools for example PEST factors in order to strategically analyse countries. Political risk

Corporate governance features, Corporate Governance features Corporat...

Corporate Governance features Corporate compliance: The BOD should make sure that corporation obeys with all related laws, governance practices, regulations, accounting an

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