Case Studay

755 Words Sep 2nd, 2014 4 Pages
Case Study: Southeastern Specialty, Inc.: Financial Risk 1. Complete the reading assignment for this week prior to beginning work on this assignment. The reading has a direct relation to the case. 2. Read Case 13: Southeastern Specialty, Inc., Financial Risk, on pp. 101 - 106 of Cases in Healthcare Finance. 3. In a Word document, answer the following case questions, found at the end of the case on pp. 102 - 106. 1. Is the return on the one-year T-bill risk free? 2. Calculate the expected rate of return on each of the five investment alternatives listed in Exhibit 13.1 (p. 106). Based solely on expected returns, which of the potential investments appears best? 3. Now calculate the standard deviations and …show more content…
c. Explain the differences between stand-alone risk, diversifiable risk, and portfolio risk. d. Suppose that you choose to hold a single stock investment in isolation. Should you expect to be compensated for all the risk that you assume? 1. a. What is the efficient markets hypothesis (EMH)? b. What impact does this theory have on decisions concerning investments in securities? c. Is the EMH applicable to real asset investments, such as the decision of SSI to invest in Project A or Project B? d. What impact does the EMH have on corporate financing decisions? 1. Prepare your assignment for submission: 2. 1. Is the return on the one-year T-bill risk free?
No, the return on the one-year T-bill is not risk free. Financial risk is related to the probability of earning a return less than expected and the larger the chance of earning a return far below that expected, the greater the amount of financial risk. Risk free assumes 100% probability that the investment will earn the total percent of return that is expected.

2. Calculate the expected rate of return on each of the five investment alternatives listed in Exhibit 13.1. Based solely on expected returns, which of the potential investments appear best?

Based on the expected returns, the potential investment that appears the best is 15% with S & P 500 Fund.

(Probability of Return

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