Unsystematic risk, Risk Management

a. What is unsystematic risk? How is it different from systematic risk? Describe the sources of unsystematic risk. What will the required rate of return be when the level of systematic
is high?

b. The risk-free rate of return is 8 percent; the expected rate of return on the market is 12 percent. Stock X has a beta coefficient of 1.3, an earnings and dividend-growth rate of 7

percent, and a current dividend of $2.40. If the stock is selling for $35, what should you do?

c. Two stocks each pay a $1 dividend that is growing annually at 8 percent. Stock A has a beta of 1.3; stock B's beta is 0.8.

i) Which stock is more volatile?

ii) If treasury bills yield 6 percent and you expect the market to rise by 12 percent, what is your risk-adjusted required rate of return?

iii) Using the dividend-growth model, what is the maximum amount you would be willing to pay for each stock?

iv) Why are your valuations different?

d. Presently, Stock A pays a dividend of $2.00 a share, and you expect the dividend to grow rapidly for the next four years at 20 percent. Thus the dividend payments will be:

Year Dividend
1 $1.20
2 1.44
3 1.73
4 2.07

After this initial period of super growth, the rate of increase in the dividend should decline to 8 percent. If you want to earn 12 percent on investments in common stock, what is the maximum you should pay for this stock?

Posted Date: 3/18/2013 5:46:14 AM | Location : United States

Related Discussions:- Unsystematic risk, Assignment Help, Ask Question on Unsystematic risk, Get Answer, Expert's Help, Unsystematic risk Discussions

Write discussion on Unsystematic risk
Your posts are moderated
Related Questions
What is the monetary certainty equivalent, Risk Management

challenges for risk management

Risk Management Many organization and investors engage in activities designed to manage the risks they face. In the corporate world the managers' search to control business ri

Evaluate risk management models • ERM approach • ISO31000:2009 • M_O_R Framework • GRC Capability Model

Determine about the Market Risk Variability in a security's returns resulting from fluctuation in aggregate market is called market risk. Market risk is sometimes used synon

Here is a basic risky decision problem: Using the template below, sketch the results of a sensitivity analysis on P(Deal Succeeds) for a risk-neutral decision maker. How hi

Systematic Risk Systematic risk is any risk which affects the value of a huge number of assets; therefore, each asset will have a various degree of sensitivity to the underlyin

Quesiton: (a) Describe why people management is important for the success of a project (b) Show which people and groups of people are important for the success of a project

explain the risk involves in swap business

What is Systematic Risk Variability in a security's total returns which is directly associated with overall  movements  in  the  general  market  or  economy  is  known as syst