funds from the endowment to distribute money to the schools within the university, while at the same time preserving the real value of the endowment and allowing for some real growth in the income distributions. Harvard is currently looking for a real return of 6% to 7% to ensure that distribution of 3% to 4% can be maintained. The university’s investment horizon is nearly limitless, assuming that Harvard will be continuing as a university. For an institution that will not end its endowment in the foreseeable
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= RF + bi (KM - RF ) Where KF (Risk free rate ) = 4.6% (KM – K F) Equity risk premium = 6.4% Bi (Beta) = 1.5 Ki (Required rate of Return) = 4.6% + (1.5 x 6.4) = 4.6% + 9.6% = 14.2% Answer no 9 (a) : McDonalds (MCD): On the basis as described above the beta for MCD is 1.55. So the required rate of return will be as follows: Ki = RF + bi
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Division B project with a 12% return. | |c. |A Division A project with an 11% return. | |d. |A Division A project with a 9% return. | |e. |A Division B project with an 11% return.
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liabilities Achieve a certain rate of return on the current pension assets for a given level of risk As a government pension plan, the fund has some understandable constraints, which are: Need to invest in mature and stable large companies Only a certain percentage of the fund could be invested in equities, meant to grow by +10% every year up to 40% The remainder (up to 60%) to be invested in bonds Their objective of achieving a certain rate of return is a necessary step to ensure the pension
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Vallendar, Germany ‡c.koziol@uni-hohenheim.de §juliane.proelss@gmx.de ¶denis.schweizer@whu.edu Received 21 October 2009 Accepted 27 October 2010 In this paper, we analyze whether model risk/asset-specific ambiguity is an issue for institutional investors. For this purpose, we first show how model risk (which turns out to be equivalent to special cases of ambiguity) affects optimal portfolio allocation. Using average portfolio holdings for traditional and alternative asset classes of 119 institutional
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WEEK 2 NPV, PBP, IRR, EAC( equivalent annual cash flow) NPV: If NPV>0, accept the project [which are expected to add value to the firm], otherwise don’t bother. Reminders Rule 1: Only cash flow is relevant Cash flow ≠ accounting income •In an 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)
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CHAPTER THREE How Financial Statements are Used in Valuation Stephen H. Penman The web page for Chapter Three runs under the following headings: What the Chapter is Doing Historical Multiples Historical Equity and Bond Returns The Selection of Comparable Firms Screening Engines Calculating Multiples Unlevered (or Enterprise) Multiples Beware of Price-to-ebitda Ratios P/E Ratios and Dividends Price-to-sales
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INVESTMENT ANALYSIS Table of Contents 1.0. Introduction: 3 3.0. Advantages of frequency distribution: 3 4.0. Analysis of returns of Reliance industries limited 4 3.1 Analysis of return of ONGC: 5 3.2 Analysis of return of Bharti Airtel: 6 4. Measurement of central tendency: 6 4.1 Mode: 7 4.2 Median: 7 4.3 Mean 7 5. Conclusion: 8 REFERENCES 10 1.0. Introduction: Generally shares are issued in the primary market and new issued shares are traded in the secondary market
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in Exhibit 15.2, Hong Kong stocks are over twice as volatile as U.S. stocks. Does that mean that risk-averse American investors should avoid Hong Kong equities? Explain. ANSWER. No. Although Hong Stock stocks are much more volatile /than U.S. stocks, their systematic component of risk is relatively low because of the low correlation with the U.S. market. The net result is that the systematic risk (beta) of the average Hong Kong stock from a U.S. perspective is only 0.85, compared with a beta
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systematic and specific risk, it extended the portfolio theory. In 1990, William Sharpe was Nobel price winner for Economics. "For his contributions to the theory of price formation for financial assets, the so-called Capital Asset Pricing Model (CAPM)." The CAPM model says that the expected return that the investors will demand, is equal to: the rate on a risk-free security plus a risk premium. If the expected return is not equal to or higher than the required return, the investors will refuse
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