Risk premium of a stock, Finance Basics

(a) RBC has 100 loans outstanding, each for $1 million, which it expects to be repaid today.  Each loan has a 5% probability of default, in which case the bank is not repaid anything.  The chance of default is independent across all the loans.  BMO has only one loan of $100 million outstanding, which it also expects will be repaid today.  It also has a 5% probability of not being repaid.  Explain the difference between the types of risk each bank faces.  Which bank faces less risk?  Why?

(b) Explain why the risk premium of a stock does not depend on its diversifiable risk.

Posted Date: 2/22/2013 3:11:55 AM | Location : United States







Related Discussions:- Risk premium of a stock, Assignment Help, Ask Question on Risk premium of a stock, Get Answer, Expert's Help, Risk premium of a stock Discussions

Write discussion on Risk premium of a stock
Your posts are moderated
Related Questions
Example of Asset Based Valuation Extracted information from the books of Kent Limited.   Current liabilities Bank overdraft    Sh. 300,000

Prudence buys a bond in EUR when it issued by the French government and inflation linked.  It offers a 2% yearly coupon.  She holds it for five years.             Par value: EUR

Suppose the Alctz Display Flowers pte  Ltd uses the periodic inventory system and  average cost to explain inventory cost. (a)  Determine the ending inventory cost as at Decembe

1. The Marlin Company operates 50 weeks a year, and its cost of goods sold last year was $1,500,000. The firm carries six items in inventory: three raw materials, two work-in-proce

what are the qualitative factors to be considered when deciding on product mix

1) Calculate the yield to maturity of a 7-year $1,000 par value bond with an annual coupon rate of 7.5% and a current price of $1,125. Provide the spreadsheet solutions for both an

Calculate total number of ordinary shares Example Company XYZ Ltd has sold 10,000 ordinary shares of Shs.30 as partly called up plus 20,000 Shs.45 preference shares, tha

Parties include In Central Depository System 1. Government As like for the motive of attracting foreign supporting and investors the infrastructure of capital markets.

Comparison between Debt Finance and Ordinary Share Capital Differences between Debt Finance and Ordinary Share Capital as Equity Finance as   Ordina

Earnings Yield Valuation EY is given via the earnings made with the business expressed like a percentage of the market price of the business that is The Formula For Earning