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.
Concept and measurement of the cost of capital The evaluation of the worth of a long-term project suggests a certain norm or standard against which benefits are to be judged. R
Q. Example on Controlling working capital? Describe how a manufacturing company could control its working capital levels and impact of the suggested control measures. Solut
Q. What do you mean by Average Cost and Marginal cost? Average Cost and Marginal cost: the average cost is the combined cost as explain above, but for the difference in the for
Secured LBO Financing or Asset-Based Lending Under asset-based lending, the borrower pledges certain assets as collateral. Asset-based lenders look at the borrower's assets as
what course a decrease and increase in share price
International mortgage-backed securities are the mortgage-backed securities that are issued in a country by a non-domestic entity. With limited size of the Indian
Financial System: The economic development of a nation is reflected by the progress of the various economic units, broadly classified into corporate sector, government and hous
Suggestion regarding Credit limit. Should it be approved or not, what should be the amount of credit limit that electronics give to Booth Plastics.
Q. Diffrence between present values of future cash ? The difference among the present values of future cash inflows generated by an asset and its cost is known as net present v
What is Inherent risk Susceptibility of an account balance or class of transactions to material misstatement either individually or when aggregated with misstat
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: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd