Elijah Ongeri Matini BBM2735/14 BBM 413 Assignment a) Alpha A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha. Alpha is one of five technical risk ratios; A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha
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potential rate of return (as long as they are of similar risk levels). 2. How can the Capital Asset Pricing Model (CAPM) be used to estimate the cost of capital for a real investment decision? (Note: A real investment decision here is contrasted from a financial investment decision. We are talking about real projects, with investment in people and technologies, etc.) Because we are talking about risks, we should think about systematic and versatile non-systematic? risks. Systematic risks usually depend
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(Bond Valuation) FIN 571 W2 Ch 5 Problem A10 (Dividend discount model) FIN 571 W2 Ch 5 Problem A12 (Required return for a preferred stock) FIN 571 W2 Ch 5 Problem A14 (Stock Valuation) FIN 571 W2 Ch 5 Problem B16 (Interest-rate risk) FIN 571 W2 Ch 5 Problem B18 (Default risk) FIN 571 W2 Ch 5 Problem B20 (Constant growth model) FIN 571 W2 Ch 7 Problem C1 (Beta and required return) FIN 571 Week 2 Individual Assignment Text Problem Sets Get Tutorial by Clicking on the link below or Copy Paste
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capital for Marriott Corporation? a. What risk free rate and risk premium did you use to calculate the cost of equity? b. How did you measure Marriott’s cost of debt? 4. If Marriott used a single corporate hurdle rate for evaluating investment opportunities in each of its lines of business, what would happen to the company over time? 5. What is the cost of capital for the lodging and restaurant divisions of Marriott? a. What risk free rate and risk premium did you use in calculating the cost
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to theory stock returns have shown a noticeable volatility; thus if an investor desires to increase expected returns she must face a higher level of risk. Similarly, it has been proven that owing a group of financial securities can assist the investor to improve the return/risk tradeoff; that is owing eight stocks will produce an improved return/risk product over time versus owing one stock. Therefore, in evaluating a portfolio it is critically important to compare returns and risks involved; but in
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paper studies the long-term risk and return characteristics of value stocks versus growth stocks for three international markets: Asia, Scandinavia, and Europe. We focus on the downside of returns and use Value at Risk as our risk measure. We find that value stocks outperform growth stocks in terms of both risks and returns across all time horizons for all three markets. We further conduct cross country analysis. Interestingly, we find that there is some risk and return trade off in short term investment
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Calculating and Interpreting Beta Introduction: In 1990, William Sharpe won a 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
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changing market returns. (b) the less responsive it is to changing market returns. (c) the higher the expected return will be in a down market. (d) the lower the expected return will be in an up market. Answer: A Level of Difficulty: 3 Learning Goal: 5 Topic: Beta and Systematic Risk 52. An increase in nondiversifiable risk (a) would cause an increase in the beta and would lower the required return. (b) would have no effect on the beta and would, therefore, cause no change in the required return. (c) would
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Coefficient And Required Rate Of Return For Coca-Cola John C. Gardner, University of New Orleans, USA Carl B. McGowan, Jr., Norfolk State University, USA Susan E. Moeller, Eastern Michigan University, USA ABSTRACT In this paper, we demonstrate how to compute the required rate of return for Coca-Cola using modern portfolio theory with data downloaded from the internet. We demonstrate how to calculate monthly returns for the index and Coca-Cola and how to use the returns to compute the beta coefficient
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stock: Dividend * (1 + growth) / (overall return – growth) a. If the required rate of return is 12 percent.: 1.90 * (1.05 / 0.07) = $28.50 b. If the required rate of return is 15 percent. 1.90 * (1.05 / 0.10) = $19.95 c. Given your answers to Parts a and b, how are stock prices affected by changes in investor's required rates of return? When the higher overall return is the lower the stock is. When the anticipated price goes down the return rate goes up. Bond Garnett Corporation
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