Finance Week 2 Essay

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Jamie Lyons Finance W2 4-1 Questions Annuity-A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years. Lump-sum payment- A one-time payment for the total or partial value of an asset. Cash flow- A revenue or expense stream that changes a cash account over a given period Uneven cash flow stream- Any series of cash flows that doesn’t conform to the definition of an annuity is considered to be an uneven cash flow stream. 4-1 problem Solve for FV…show more content…
[pic] K. The beta coefficient is a measure of a stock’s market risk, or the extent to which the returns on a given stock move with the stock market. [pic] b average stock’s beta- is equal to 1 6-1 0.8 + 1.4 = 2.2 2.2/ 2 = 1.10 1.12 6-2 k = RF + Beta(Market return - RF) .06 + .7(.13 - .06) = 10.90% 10.90% 6-3 Required Return = Risk free Return + Beta*(Market Risk Premium) 5+1.0(6)=11% 5+1.2(6)= 12.2% 6-4 (0.1*-.5) + (0.2*-.05)+(0.4*.16)+(0.2*.25)+(0.2*.06)=0.114 11.4% expected return= 11.40% square root of [0.1(-.5)squared] + [0.2(-.05)squared]+[0.4(.16)squared]+[0.2(.25)squared]+[0.2(.06)squared] standard deviation= 26.69% 26.69% divided by 11.4 = .2669 divided by .114 coefficient of variation-= 2.34 6-9 |Stock |Investment |Beta |w | |A |$400,000 |1.50 |10.00% | |B |$600,000 |-0.50 |15.00% | |C |$1,000,000 |1.25 |25.00% | |D |$2,000,000 |0.75 |50.00% |
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