Distinguish between diversifiable and non-diversifiable risk, Financial Management

Assignment Help:

Question:

(a) An efficient financial market is assumed to hold under the Capital Asset Pricing Model (CAPM). What is the main hypothesis of an efficient financial market?

(b) Define the three forms of market efficiency.

(c) Distinguish between diversifiable risk and non-diversifiable risk.

(d) You are the portfolio manager at Peacock Funds Ltd. You are considering purchasing the equity shares of Swan Ltd. The current price per share of Swan Ltd. is Rs 40. You expect the dividend per share to be Rs 4 and the market price per share of Swan Ltd. at the end of the year to have the following probability distributions:

651_Distinguish between diversifiable risk and non-diversifiable risk.png

What is the expected return if Rs 4000 is invested in the shares of Swan Ltd?

(e) The rate of return on Treasury Bills is 4 percent and the market risk premium is 8 percent. Using the CAPM model, calculate beta (β) if investors require a 10 per cent rate of return on common stocks.


Related Discussions:- Distinguish between diversifiable and non-diversifiable risk

Dry up of liquidity and increased correlation, Hedge funds are short two ty...

Hedge funds are short two types of funding options. Describe in detail what these options are. Describe why these options become more valuable during a financial crisis. During

Show the analysis of credit information, Q. Show the Analysis of Credit Inf...

Q. Show the Analysis of Credit Information? Analysis of Credit Information: - Subsequent to obtaining the desired information from various sources the information is examined t

Mortgage pass-through securities, The basic form of a mortgage back...

The basic form of a mortgage backed security is that of a mortgage pass-through security. Among the mortgage-related securities, the mortgage pass-through s

Cash flow yield, In structured products like mortgage-backed and asse...

In structured products like mortgage-backed and assets-backed securities, the cash flows include both principal repayment and interest. The complication arises wh

Calculate the cumulative probability , Compound options are usually cheaper...

Compound options are usually cheaper than vanilla options and we know that there are four main types of compound options: a call on a call; a put on a call; a call on a put; a put

Future value of money, john has two options from which to choose one: (a)E...

john has two options from which to choose one: (a)Either to pay shs24m for the motor vehicle now . OR (b)To pay for the car in four equal regular installments of shs7m ea

Investment strategy of hedge funds, Investment Strategy OF HEDGE FUNDS ...

Investment Strategy OF HEDGE FUNDS After the Funds are raised from genuine investors, the next step for Hedge Funds is to invest them as per the investment objectives and strat

The ex-dividend price of novis stock, The net income of Novis Corporation i...

The net income of Novis Corporation is $45,000.  The company has 20,000 outstanding shares and a 100 percent payout policy.  The expected value of the firm one year from now is $1,

How would the market price of a bond be affected, All other things held con...

All other things held constant, how would the market price of a bond be affected if coupon interest payments were made semiannually instead of annually? The majority of bonds i

Swap market, Swap Market: The fall of Bretton Wood system in early 1970...

Swap Market: The fall of Bretton Wood system in early 1970s weakened of the pound. It was imperative to stop the downward slide of the pound. In order to control the flow of fo

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