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.
Objectives and Functions of ASIC The objective of ASIC is to ensure the confident and informed participation of consumers in the financial system. To attain this objective, it
Blossom Lawn expects to have total sales next year totaling $15,000,000 and the firm pays taxes at 35% and will owe $300,000 in interest expenses.
The RBI, on behalf of the government, issues all T-Bills and Government dated securities. Being risk-free securities, they set the benchmark for the interest rate
What do you understand by financial viability of the organization? 2 : Define Following accounting and financial terms: Asset Liability Equity Income Expense
This is again a distinction which becomes important in case of a default. The senior bondholders have to be paid before the subordinate bondholders. This means th
1. Of course a swaption will be needed. The major reasons being that Bond A is callable after 3 years and matures in 4 years whereas Bond B matures in 5 years. It is understandable
What is the time value of money? The meaning of time value of money is that money you hold in your hand today is worth much more than money you suppose to receive in the future
Q. Explain the benefit plan? Cafeteria Plan - A benefit plan maintained by an employer for benefit of the employees underwhich every participant has the opportunity to select t
Breaks in Specific Cost of Capital: The specific costs of capital may also be affected by the amount of finance the firm wants to raise. As the amount of financing increases, the
Why do total assets equal the sum of total liabilities and equity? Explain. Assets = Liabilities + Equity Assets are the items of value that a business owns. Liabilities ar
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