Differentiate between price risk and reinvestment risk.

Q: Describe Asset/Liability Models and explain why it is better than Value-at-Risk Models for Portfolio…

A: The process through the use of assets and liabilities are managed in such a way that the risk of…

Q: Define then discuss Value-at-Risk.

A: The stock market is full of new policies and procedures. It get impacted by change in the government…

Q: Define default risk

A: Default risk: It is the threat or risk of a bank taking on the plausibility that a borrower will not…

Q: Explain risk arbitrage

A: It is a venture system to benefit from the narrowing of a hole of the exchanging cost of an…

Q: WHAT IS THE VALUE OF DISCOUNTED FLOWS

A: As per Time value of money, there are present values as well as future values.

Q: Explain the effect of issuance cost on firm value.

A: There are issues cost associated with debt and equity that has impact on  value of firm.

Q: Describe the Market-Value Analysis?

A: Market Value is a solid indicator of investor or shareholder capital. All things considered, what…

Q: Define within-firm risk

A: Within-firm risk: Corporate (within-firm) risk is a hazard identified with an individual business.…

Q: Define Risk in general

A: In finance, risk is defined as the level of vulnerability that potentially creates financial loss…

Q: What types of information must be considered when it comes to risk and return?

A: Risk and return go hand in hand both are related to each other.There is direct correlation between…

Q: Define the term current market value.

A: The current market value (CMV) gives parties interested in making a transaction the approximate…

Q: Define diversifiable risk

A: Diversifiable risk It is special to a given business or industry. Regularly known in the feeling of…

Q: Discuss the assumptions, approach, estimation, benefits, limitations, and criticisms of Arbitrage…

A: Arbitrage Pricing Theory is a multi-factor pricing model. Arbitrage Pricing Theory can be used to…

Q: Define the term Trade-Off between Risk and Reward?

A: Risk-Reward trade off refers to an investment principle which indicates higher the risk, higher is…

Q: Calculate the insurable earnings.

A: Answer:

Q: Define Risk Premium

A: It is defined as the distinction between the expected return for a portfolio or an investment and…

Q: Explain risk-neutral valuation

A: A risk-neutral valuation is a probability measure used to help pricing derivatives and other…

Q: What is the Internal-Rate-of-Return Criterion?

A: Internal rate of return (IRR): The internal rate of return (IRR) is a measure utilized in capital…

Q: What discount rate is used in a lessor’s NPV analysis?

A: Weighted average cost of capital is used as discount rate in Lessor's NPV analysis.

Q: What information would be required to compute the risk-asset ratio under Basle I?

A: The risk asset ratio (RAR) measures the amount of a bank's total regulatory capital in relation to…

Q: Describe the Internal-Rate-of-Return Criterion?

A: Internal rate of return (IRR) is defined as the rate of discount at which the NPV of human capital…

Q: Explain the Trade-Off between Risk and Reward?

A: The trade-off means to lose one thing to achieve another thing. For example An organization is…

Q: Define the term s liquidity position?

A: Definition: Liquidity: Liquidity is the capability of a company to pay the short-term liabilities…

Q: How might you mitigate the risks that are mentioned? Market, Liquidity, and Operational.

A: Businesses face various types of risks that affect survival and growth of the company. Risks that a…

Q: Explain the risk-return trade-off for liquid assets.

A: Risk return trade off tell relationship between the risk and return.

Q: Describe relationship between risk and profitability.

A: Risk and profitability have direct relation. Lower the risk, lower is the return and Higher the…

Q: What makes the risk-adjusted discount rate approach appealing in practical application?

A: Answer: The discount rate may be changed to offset the risk involved in a project in order to…

Q: Define the term Risk-Adjusted Discount Rate Approach?

A: The estimation of the present value of cash for high-risk investment is known as a risk-adjusted…

Q: Present the internal rate of return criterion and its strengths and weaknesses.

A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…

Q: (a) Define risk-free asset

A: An asset which generally having certain future returns and there is no chance of loss in return is…

Q: Define risk

A: Risk can be defined as whenever there are chances that the investments’ actual outcomes are…

Q: Define Seller Financing?

A: Seller financing : Seller financing is real estate agreement which means seller financing the real…

Q: Explain risk premium

A: An investor investing in a risky asset would demand a greater interest rate to compensate for the…

Q: Define risk-free asset?

A: Risk-free means that anything which does not have any kind of risk associated with it. They are free…

Q: What should be done to apply rate-of-return analysis correctly?

A: Rate of return: It can be defined as the rate of interest that has been earned by the company on the…

Q: Give some examples of market value analysis?

A: Market value is a strong shareholder richness measuring stick. And besides, what depends is what the…

Q: Risk Ratios

A: Average collection period = 365 * ((Opening accounts receivable + Closing accounts…

Q: the market value of A

A: In this case of borrowing we buy cap from market at swap rate, if market interest rate is increased…

Q: escribes the relationship between risk and return.

A: Risk and return are directly related.

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.