Another option is to use data for small companies in order to match the high return and high risk nature of Ameritrade. Although Ameritrade’s investment may make it more risky than the average large company, the beta we have chosen already reflects that higher risk. Therefore, we have chosen to use the market return for large companies because it more accurately depicts an overall picture of the stock market and Ameritrade’s status as a large firm. After subtracting the chosen risk-free rate of 5.24% from the average large company market return of 14.0%, we estimated the market risk-premium to be 8.76%.
FIN 550 FIN550 week 1 to week 11 Complete Course Click below link for Answer visit www.workbank247.com http://workbank247.com/q/fin-550-week-1-to-week-11-complete-course-fin550-w/9896 http://workbank247.com/q/fin-550-week-1-to-week-11-complete-course-fin550-w/9896 FIN 550 Week 1 Discussion "Investment Performance and Decisions" Please respond to the following: * From the e-Activity, predict the performance of the DOW for the next two years. Provide support for your prediction.
Assignment for Corporate Finance Assignment Major : Group : Name : 1 i) How much business risk does Hill Country face? Hill Country Snack Foods Company manufactures, markets, and distributes snack foods and frozen treats throughout the United States. Hill Country is overall well performed company. Sales, Net Income, ROE and ROA had increased at a steady rate. Company mainly focused on maximizing the shareholder value by the CEO and other management’s managerial philosophy. Currently, Hill Country uses a risk adverse strategy to choose their business or project. Hill Country’s industry is high competitive but it kept going well with cost efficiency and
Entrepreneurial finance assignment 1 Problem 4.4. Introduction The CAPM model can be used to analyze the performance of a portfolio of investments. The model should be calculated by comparing the return of assets (Ri) minus the return of risk-free cash (Rf) of the fund against those numbers of a known index with historical data (Rm). With least-squares regression, a straight line has to be drawn through the points to finish the model. Alpha represents the point where the graph starts and beta the slope of the regression line. Alpha is the number that represents the fact of how well the fund did against the CAPM model. A positive alpha means the fund did better than CAPM predicted and negative the opposite. R² represents the ‘fit’ of the
Problem 1: Jonathon Barrs is a manager for Easy Manufacturing, LLC. He wishes to evaluate three possible investments. These investments are for the purchase of new machine tools from Germany, Japan, and a local US manufacturer. The firm earns 10% on its investments and they have a risk index of 5%. The chart below lays out the expected return and expected risks of the three projects.
Do not turn the page until instructed by the examination supervisor. 1 QUESTION 1 Owners’ Equity (10 marks) HJK Financial Give an example. (5 marks) Briefly discuss whether the short-term differences between applications in (a) are removed when the investment is sold. (3 marks) Briefly suggest reasons why short-term differences may not be irrelevant. (2 marks)
Chapter 3. 15. Investment A has an expected return of $25 million and investment B has an expected return of $5 million. Market risk analysts believe the standard deviation of the return A is $10 million, and for B is $30 million (negative returns are possible here).
Part B: How might each of the following concepts affect the results of the study?
Question 5. The samplle variance is 84.20 so the answer is a. Question 6. The mean return for the Vanguard Total Stock Index is 20.8 while the mean return for the Vanguard Balanced Index is 12.9 (with bonds). Based on this data you would conclude that bonds do not reduce the overall risk of an investment portfolio since the mean return was actually less when the porfolio has bonds in
The assumption of rationality in economics implies that: Answer Selected Answer: people make choices with an eye toward attaining objectives they have chosen. Correct Answer: people make choices with an eye toward attaining objectives they have chosen. Question 2 0 out of 10 points Carla had received very low annual return from her investment portfolio comprising of stocks of five companies for two years. Her decision to continue holding the same portfolio of assets will be an example of:
2. The regression that we performed in excel for both stocks yielded a beta of .73576 for Reynolds, and a beta of 1.4198 for Hasbro. In question 2 we learned that although Reynolds stock was riskier independently, adding it to the portfolio made it more diversified compared to adding Hasbro, due to the fact that it was less correlated to the market portfolio. Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Therefore, since the beta of Reynolds is lower than Hasbro, our beta calculations align with the fact that Reynolds stock makes the overall portfolio less risky. This finding is also intuitive when considering the nature of the companies; Reynolds is a Tobacco company meaning that is should be less sensitive to changes in market conditions than a toy company like Hasbro.
achieve the equivalent purpose of the former. A construction union today, whose basket of specialized materials includes environmentally harmful products, faces the same risk of obsoleteness. It follows that the ratification of an environmental regulation outlawing a certain product, or litigation outcome rendering the handling of a construction material as detrimental to human health, can extinguish an entire construction union. High taxation Members who either already dedicated their careers or were soon-to-be eligible beneficiaries would find themselves deprived of the income that they were promised in retirement. While retraining programs and federal pension guaranty programs could mitigate the magnitude of these risks, this paper advocates for a more proactive solution. Active investing in
Investment Strategy Recommendations Using the stock market to invest in securities can be risky but with a little research and a carefully thought out investment strategy the road to financial security can be successful. Portfolio selection is a critical step in the investment process when deciding on which securities and stocks to purchase. When investors are selecting securities for a portfolio, the risks and returns must be considered for each individual stock in addition to the risks and returns for the portfolio as a whole. When looking at stock risks, both beta and unsystematic risk should be taken into consideration. When high return stocks have a beta greater than one, this means these stocks are highly volatile in comparison to the overall market and prove to be more risky. Stocks with high unsystematic risk are likely to have changes in stock prices. It is recommended to continue diversifying the stock selection and the allocation of funds to avoid industry risks, or beta. Industry risks often affect all stocks in a given industry. It is also recommended to continually evaluate the company’s investment portfolio as market conditions and future trends can sometimes be unpredictable. In the event that the economy becomes unstable and the
Security Return ([pic]) Risk (β) High Tech 17.4% 1.29 Market 15.0 1.00 U.S. Rubber 13.8 0.68 T-bills 8.0 0.00 Collections 1.7 –0.86 (1) What is a beta coefficient, and how are betas used in risk analysis? (2) Do the expected returns appear to be related to each alternative’s market risk? (3) Is it possible to choose among the alternatives on the basis of the information developed thus far? Use the data given at the beginning of the problem to construct a graph that shows how the T-bill’s, High Tech’s, and Collections’ beta coefficients are calculated. Discuss what beta measures and explain how it is used in risk analysis.
Executive Summary Based on the case “Thompson Asset Management” from HBS Professor William Fruhan and writer John Banko, this group exercise has the purpose to discuss various investment philosophies and consider the advantages of quantitative investing, especially technical analysis. Moreover, it should discuss the return variability and risk/return characteristics of the “Thompson Asset Management” funds, the ProIndex and the ProValue funds, regarding its returns, absolute and relative risks, as well as its risk relative to a benchmark index. The