Unsystematic risk, Risk Management

Assignment Help:

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?


Related Discussions:- Unsystematic risk

Post loss objectives, a) Discuss the post loss objectives that would help t...

a) Discuss the post loss objectives that would help the firm recover

Differentiate between interest and currency swaps, a) Differentiate betwee...

a) Differentiate between interest and currency swaps. b) Suppose a Swiss firm, ACER Com Ltd, wants to invest in the U.S. The Swiss firm needs US dollars with a term to maturit

Risk and return, A person is willing to sell some stock at Rs 500000 after ...

A person is willing to sell some stock at Rs 500000 after one year from now. The risk free rate is 7% and the risk premium is estimated at 8%. I the person is intending to enter a

Report of the audit committee , Determine any qualitative factors or inform...

Determine any qualitative factors or information in the annual reports and accounts for Home Retail Group plc for 2011, containing the report if the audit committee, that you as th

Data security, Data Security: An important issue for all organisations ...

Data Security: An important issue for all organisations is the security of data. Just as documentation require physical security in the face of risk of theft / fire etc, electr

Risk assessment exercise, Question : Safety World Ltd is a new company...

Question : Safety World Ltd is a new company that employs 110 people and provides contracting carpentry services to several organisations throughout the country. Some employe

How to gather and manipulate the data, Step 1: Stock Data: Choose four stoc...

Step 1: Stock Data: Choose four stocks, 2from the Dow Jones Industrial Average (DJIA 30) and 2other stocks of your choice.Download, import, or copy and paste the monthly price info

Market liquidity risk literature review, I would need a literature review o...

I would need a literature review of the market liquidity risk. 1)Basic definitions 2)Literature review - in the context of market microstructure -Importance of market liquidity ris

Task for report and appendices, The task for Report & Appendices The ma...

The task for Report & Appendices The main aim of the appendices is to show a series of graphical and descriptive material which demonstrate your technical knowledge of the proc

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd