Briefly define capital risk and explain how a positive leverage-adjusted duration gap can contribute to an adverse impact on capital.

Q: Explain the concept of efficient markets.  Are the equity capital markets inefficient?

A: Introduction: The given question is related to the concept of efficient market hypothesis. It is a…

Q: What is financial leverage? Why is a one-year measure of return on investment inadequate in…

A: Financial leverage: The benefit from use of financial leverage arises when the interest rate on the…

Q: Which combination of investment policy and financing policy related to working capital provides the…

A: RELAXED AND CONSERVATIVE  Relaxed policy estimates the current assets for achieving the target…

Q: What's the difference between the capital asset pricing model and modified capital assset pricing…

A: Capital Asset Pricing Model CAPM describes the relationship between systematic risk and expected…

Q: Explain how to classify working capital according to its “components” and according to “time” (i.e.,…

A: Working capital is the capital of excess of current assets over current liabilities. Working capital…

Q: What do you believe is the significance of a good capital structure? What is Degree of Operating…

A: Capital structure refers to company's debt and equity mix as a means  for financing the operation…

Q: What is the main disadvantage of discountedpayback? Is the payback method of any realusefulness in…

A: The discounted payback method is a method of evaluating the payback period of the investment carried…

Q: how a failed capital project may shape the future strategy of investment capital.

A: Introduction: Capital projects are nothing but a long term capital intensive initiative aimed at…

Q: The Capital Asset Pricing Model (CAPM) asserts that an asset’s expected return is equal to the…

A: Based on CAPM, Expected return on security = Risk free rate + Beta * Market risk premium

Q: The capital asset pricing model (CAPM) contends that there is systematic and unsystematic risk for…

A: Introduction : In simple words, capital asset pricing model or CAPM can be understood as a valuation…

Q: Capital investment decisions often involve all of the following: qualitative factors or…

A: Solution Introduction Capital investment means investment in capital assets The capital assets are…

Q: the Capital Asset Pricing M

A: Explanation : In simple words, Capital asset pricing model for valuing the cost of capital contains…

Q: What is capital rationing, what conditions lead toit, and how should it be dealt with?

A: Capital budgeting is a process in which capital projects are assessed in terms of their viability…

Q: How do you call a strategy that separately examines capital market conditions and the investor's…

A: The strategy is called as “Integrated Asset Allocation Strategy”.

Q: Describe a procedure firms can use to establish costs of capital forprojects with differing degrees…

A: Cost of capital is the rate of interest that the company pays to their investors for investing in…

Q: Why should the financial manager include opportunity cost but ignore sunk costs when evaluating a…

A: Capital investment is defined as an amount, which used to get invested in the corporation for…

Q: The cost of capital is a hurdle rate. Is this statement true? Why or why not?

A: The question is based on the concept of minimum required rate for any project . Hurdle rate is the…

Q: What factors can lead to an increasing marginal cost of capital?How might this affect capital…

A: Following are the factors that lead to an increasing marginal cost of capital: The breakpoint of…

Q: Payback period is one of the nondiscounting models used in capital investment decisions.  What are…

A: Payback period refers to the period in which the initial investment is recovered.

Q: In capital budgeting, one advantage of the internal rate of return is that it does not require the…

A: Introduction: Capital budgeting: Capital budgeting is the technique used for analyzing the…

Q: Explain this statement: Using financial leverage has both good and bad effects.

A: financial leverage is the process of borrowing capital to make an investment, with the assurance…

Q: why is a risk analysis important to the capital investment decision making process?

A: Risk is the uncertainty or possibility of loss due to the decision in investment process. Of all the…

Q: Explain how differential weight to losses and gains effect investment decisions?

A: Prospect Theory assigns differential weight to losses and gains for making investment decisions.

Q: What is the nominal return associated with an investment in capital, and why?

A: Nominal Return is the amount of money generated by an investment.

Q: Explain the difficulties for determining the cost of capital in the short term decision making.

A: Introduction: Capital structure relates to financing of the overall activities and development of a…

Q: asset

A: The term CAPM or capitam asset pricing model is a model which shows the relationship between risk…

Q: What are the Factors That Complicate Capital Investment Analysis

A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

Q: Distinguish between hard and soft capital rationing

A: Capital rationing is allocating a given amount among the most profitable projects which can maximize…

Q: Why is the cost of capital sometimes referred to as a “hurdle rate”?

A: Cost of capital is the cost of financing a business, investment or a project. Cost of capital is…

Q: What factors contribute to the risk of overusing financial leverage?

A: Financial leverage is the use of debt in the capital structure to acquire additional assets. Use of…

Q: What is the major short coming of using the payback period as the only criterion in making capital…

A: ANSWER    the major short coming of using the payback period as the only criterion in making capital…

Q: why is knowledge of the money market important for carrying out value maximizing working capital…

A: Introduction: For this question, the importance of working capital which helps to manage the short…

Q: A good current and quick ratio are a guarantee of excellent working capital management strategies.…

A: Working capital management involves the management and control of the gross current assets. The…

Q: CAPM

A: Capital Asset Pricing Model: Capital asset pricing model is the model which describes the…

Q: What are the two types of risk according to the Capital Asset Pricing Model? Which of the two types…

A: The Capital Asset Pricing Model (CAPM) describes the link between systematic risk and expected…

Q: Why do maximizing EPS and maximizing value not necessarily lead to the same conclusion about the…

A: Earning per share or EPS is referred as the net profit of the corporation, which are divided through…

Q: What is the relationship between return on capital investment and the risk associated with the…

A: Return on invested capital is referred as an amount of the funds of the corporation, which helps in…

Q: Briefly discuss capital asset price model from the standpoint of investors and managers.

A: CAPM from standpoint of managers : Capital asset pricing model is of high value for financial…

Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.