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What is nondiversifiable risk? How is it measured?
If not the returns of one-half the assets in a portfolio are perfectly negatively correlated along with the other half-which is very unlikely- some risk will remain after assets are combined into a portfolio. The degree of risk which remains is non-diversifiable risk, the part of a portfolio's total risk that cannot be eliminated by diversifying.
Nondiversifiable risk is calculated by a term known as beta (β). The ultimate group of diversified assets, the market, has a beta of 1.0. The betas of individual assets and portfolios, relate their returns to those of the whole stock market. Portfolios along with betas higher than 1.0 are comparatively more risky than the market. Portfolios with betas less than 1.0 are comparatively less risky than the market. (Risk-free portfolios have a beta of zero.)
Explain the Basis Risk Basis risk considers to the floating rates of two counterparties being pegged to two dissimilar indices. In this situation, as the indexes are not compl
VK Ltd a multi-product Company, furnishes you the following data relating to theyear 2000.First Half of the year Second Half of the yearSales Rs. 45,000 Rs. 50,000 Total Cost Rs. 4
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Why do firms enter an industry when they know that in the long run economic profit will be zero? Firms enter an industry while they suppose to earn economic profit. These shor
Q. Working capital cycle? In a manufacturing concern the working capital cycle is start with the purchase of the raw material and ends with the realization of the cash from the
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(a) The position of an agency that sells a callable coupon bond. We supposed that coupon bond has a maturity of 3 years and is callable only at the second year. (b) The market t
Company X is expected to maintain a constant 7% growth rate in their dividends, indefinitely. If company X has a dividend yield of 4%, what is the required return on their shares?
When an investor invests in fixed income securities, he receives returns from one or more of the following sources: Coupon Interest payment.
Employee Benefit Plan - Compensation arrangement, usually in writing, used by employers in addition to wages or salary. Some plans like group term life insurance, medical insuranc
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