Municipal Bonds. This bond fund has high risk, high returns, and little, if any tax implications. The main risk one may have to face when investing in a tax-free bond fund is t he interest rate risk, credit risks, non-diversified risks, money fund risk, graphical risk, political risk, and derivatives risks. The bond price that accompanies a rise in overall level of interest rates decline; therefore, the longer maturity of the fund the greater the interest rate risk. One may be taking the chance of their
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a. The annual returns and average returns over the five-year period for Bartman Industries, Reynolds Incorporated and the market index Winslow 5000, from the data above, are given below: 1. Annual Returns = [{(Ending Price – Beginning Price) + Dividend}/ Beginning Price] x 100 2. Average Returns = (sum of annual returns)/(number of observations) Year | Bartman Industries (Annual Returns) (%) | Reynolds Incorporated (Annual Returns) (%) | Winslow 5000 (Annual Returns) (%) | 2011 |
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1. Calculating Returns Suppose a stock had an initial price of $84 per share, paid a dividend of $1.40 per share during the year, and had an ending share price of $96. Compute the percentage total return. The percentage total return is (96-84+1,40)/84=0,1595=15,95% 2. Calculating Yields In Problem 1, what was the dividend yield? The capital gains yield? Capital gain yield: (96-84)/84=0,1429=14,29% Dividend yield: 1,40/84=0,167=1,67% 3. Calculating Returns and Variability You’ve
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expected return on a risky asset by adding to the risk free rate of return a market risk premium. Sharpe and Lintner built CAPM theory on basis of Markowitz theory of mean- variance portfolio model. 1. Assumption of CAPM Markowitz mean- variance analysis refers to the theory of combining risky assets so as to minimize overall risk of the portfolio at desired level of return. The Markowitz theory is based on three assumption i.e. all investors minimize risk for desired level of expected return or demand
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Beta measures the systematic risk of a security or a portfolio in contrast to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected returns of an asset based on its beta and expected market returns. Beta is calculated using regression analysis, it can be viewed as the trend of a security's returns to respond to movement in the market. A beta of 1 indicates that the security's price will move with the market. A beta less than 1 indicates
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02-19-2014 FINMAN 5B 1:30-2:30 MWF D522 “TESTS AND RESULTS IN EFFICIENT MARKET HYPOTHESIS” a.) Weak Form EMH -Tests of “Statistical memory” in security prices and returns Statistical tests of independence between rates of return: * Autocorrelation tests- it is mostly support the weak-form EMH and indicates that price changes are random and some studies using more securities and more complicated tests cast some doubt. *Runs tests – it indicates
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Exam 2 Name _________________________________ Formulas Two risky assets E(Rp) = w1 R1 + w2 R2 σp2 = w12 σ12 + w22 σ22 + 2w1w2 ρ12 σ1σ2 ; note to find σp, take square root of σp2 One risk-free and One Risky Asset E(Rp ) = Rf + σp[(Rm-Rf)/σ2] E(Rp) = w1 Rf + w2 Rm w1 + w2 = 1 where w1 is % in risk-free asset and w2 is % in risky asset. σp = w2 σ2 CAPM: E(Rp) = rf + β(Rm-rf) σi2 = Σ[Ri - E(Ri)]2/(n-1) σi,m = Σ{[Ri - E(Ri)][Rm - E(Rm)]}/n-1 β = (ρi,m * σi)/σm or β = σi,m / σm2
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CHAPTER 7—PROJECT CASH FLOWS AND RISK TRUE/FALSE 1. If an investment project makes use of land that the firm currently owns, the project should be charged with the opportunity cost of the land. 2. Net incremental operating cash flow is calculated by adding back the change in depreciation to the change in income after taxes. 3. A key difference between replacement and expansion project analyses is that with replacement, the incremental cash flows are measured as the net difference between projected
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Undergraduate Research Opportunity Programme in Science Value at Risk Dai Bo Supervisor: Dr. Arie Harel Department of Mathematics National University of Singapore Academic year (2000/2001) I Summary Value at Risk (VaR) is one of the most popular tools used to estimate exposure to market risks, and it measures the worst expected loss at a given confidence level. In this report, we explain the concept of VaR, and then describe in detail some methods of VaR computation. We
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Required Rate of Return on stocks Name: Course: Instructor: Date: REQUIRED RATE OF RETURN ON STOCKS Introduction The full amount of risks that any investment faces is composed of the summation of the diversifiable and the non-diversifiable risks. As shown in the formula below. Total Risk = Systematic (non-diversifiable) Risk + Diversifiable Risks The Systematic risk is defined as the effect of risk that every type of investment will come across owing
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