sector fund | 1 points QUESTION 3 B 1. Consider a no-load mutual fund with a NAV of $20 at the start of the year and a NAV of $22.727 at the end of the year. During the year investors received income distributions of $2 per share, and capital gains distributions of $0.25 per share. Assuming that the fund carries no liabilities, and that the operating expense ratio is 1%, what is the rate of return of the fund for the year? | | 36.25% | | | 24.90% | | | 23.85% | | | There
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Nobel Prize in Economics for his work in developing the Capital Asset Pricing Model (CAPM). Traditionally the CAPM has been the basis for calculating the required return to the shareholder. This figure in turn has been used to calculate the economic value of the stock and the Weighted Average Cost of Capital (WACC) for capital budgeting. In recent years, the CAPM has been attacked as an incomplete model for explaining market pricing behavior, but academics and practitioners cannot agree on
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goal of the authors is to develop a proper framework for the analysis by setting the main focus on transaction costs. Therefore, they take a look at four different aspects: the demand for financial commodities, the production, their pricing altogether with the pricing of additional services and the influence of governmental regulation on financial intermediaries. They start their survey from a contrary point as the other authors did in recent history by defining financial intermediaries as firms
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priced athletic shoe while adding a push to the apparel line. After examining Nike’s financial statements we have come up with our conclusion. The weighted average cost of capital, WACC, is the rate of return required by investors. The WACC calculates the different risks associated with the individual components of the capital structure. The individual components within the WACC are preferred stock, common stock, and after-tax debt. The WACC is very important because it tells the investors if the
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under the assumption that the reader is aware of the basic risk premium evaluation models and theories such as the Modern Portfolio Theory and the Capital Asset Pricing Model. This article explains why there was a need for such evaluation mechanisms and why, in some way shape or form, these models were flawed and hence there was and is a need for a new mechanisms for evaluating risk premiums. Evolution of models to calculate Risk Premiums In the realm of corporate finance, investments, and valuations
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income statement, profit is shown as it is earned rather than when the company and its customers get around to paying their bills. •Cash outflows are sorted into two categories: 1) current expenses, deducted when calculating income; and 2) capital expenses, depreciated over several years. •Always estimate cash flows on an after-tax basis; taxes should be discounted from their actual payment date Rule2: Estimate cash flows on an incremental basis Do not confuse average with incremental pay
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Chapter 11 Return and Risk: The Capital Asset Pricing Model (CAPM) Copyright © 2015 by the McGraw-Hill Education (Asia). All rights reserved. 11.1 Individual Securities The characteristics of individual securities that are of interest are the: Expected Return Variance and Standard Deviation Covariance and Correlation (to another security or index) 11-1 11.2 Expected Return, Variance, and Covariance Consider the following two risky asset world. There is a 1/3 chance
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beta. Beta is an indicator of an asset’s exposure (or vulnerability) to systematic risk and evaluates the degree to which an asset’s return is correlated with the market return. Beta is a key parameter in the Capital Asset Pricing Model (CAPM) which is most commonly used asset pricing model for the estimation of required rate of returns on a share (i.e. cost of equity=rE). This assignment consists of two parts. Part I directs you to work with real financial data in Excel and aims to take you through
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1. Diversifiable risk – also known as firm-specific risk that affects one or few investments 2. Nondiversifiable risk – also known as market risk that affects almost all investments Diversification, the process of holding more than one specific asset, can reduce the
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rate of return of an unlevered firm rS = Required rate of return of the Stocks rB = The cost of Bonds rWACC = Weighted Average Cost of Capital EBIT = Earnings before interest and tax Beta and Leverage Without corporate tax (asset = (equity ( Equity/(Equity+Debt) + (debt ( Debt/(Equity+Debt) if (debt = 0 ( (equity = (Equity+Debt)/Equity ( (asset With
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