Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Required Rate of Return (Ri)
The required rate of return (Ri) is the minimum rate of return that a project must generate if it has to receive funds. It’s thus the opportunity cost of capital or returns predictable from the second best option. In common,
Required Rate of Return = Risk-free rate + Risk premium
Risk free rate is compensation for time and is made up of the real rate of return (Rr) and the inflation premium (IRp). The risk premium is reimbursement for risk of financial actions exhibiting:- The riskiness of securities caused by term to maturity- The security liquidity and marketability- The consequence of exchange rate fluctuations on the security, and so on.The requisite rate of return can hence be expressed as follows:
Rj = Rr +IRp +DRp +MRp + LRp + ERp + SRp + ORp.Where:
1) Rr is the actual rate of return which compensates investors for giving up the utilization of their finances in inflation free and risk free market.2) IRp is the Inflation Risk Premium that compensates the investor for the reduction in purchasing power of capital caused by inflation.3) DRp is the Default Risk Premium that compensates the investor for the possibility that users of finances would be unable to pay back the debts.4) MRp is the Maturity Risk Premium that compensates for the term to maturity.5) LRp is the Liquidity Risk Premium that compensates the investor for the option that the securities given are not simply marketable (or convertible to cash).6) ERp is the Exchange Risk Premium that compensates the investors for the fluctuation in exchange rate. This is mostly significant when the funds are denominated in foreign currencies.7) SRp is the Sovereign Risk Premium that compensates the investors for the option of political instability in the country in which the funds have been given.8) ORp is the Other Risk Premium example, the kind of product, the type of market, and so on.
DEFINITION OF BUDGETARY CONTROL As per the ICMA, BUDGETARY CONTROL is the establishment of budgets, relating the tasks of executives to the requirements of a policy, and the c
Explain the term- Maturities Debentures are sometimes grouped by length of time till maturity that existed on the date debenture was first issued. Money Market Securities matu
Now that we have seen how default-free theoretical rate can be extrapolated from the treasury yield curve, let us see how some other additional information, like forwar
Determine about the call and put option A call/ put option provision allow both issuing company and investor to redeem the bonds at a specified amount before maturity date. Lon
What is the role of a broker in security transactions? How are brokers compensated? Brokers manage orders to sell or buy securities. Brokers are agents who deal on behalf of an
Explain what a bond is and discuss its nature as a "fixed income" security.Discuss important terms in relation to bonds as the "price", "maturity", "current yield", "yield to matu
An options strategy by which an investor owns a position in both a call and put market with the same strike price and expiration date.
Consider a world with two assets: a riskless asset paying a zero interest rate, and a risky asset whose return r can take values +10% or -8% with equal probability. An individual h
Time Series and Demand Forecasting The process of budgeting in many organizations starts with a forecast of demand for the products in the forthcoming year and the sales f
Does high operating leverage always mean high business risk? Explain. High operating leverage doesn't always mean high business risk. If the company's sales are quite steady
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!
whatsapp: +1-415-670-9521
Phone: +1-415-670-9521
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd