What is the criticism for using SMB and HML as risk factors?

Q: A 15 year, semi-annual bond has a coupon rate of 4%. The YTM is 4%. What is the bond's duration and ...

A: Given: Years = 15 Coupon rate = 4% YTM = 4%  

Q: ABC Corporation issued P1,000,000 in 8% bonds, maturing in ten years and paying interest semi-annual...

A: Face Value of bonds = 1,000,000 Coupon rate = 8% N = 20 semi annual periods (10 years) Bonds issued ...

Q: True or False Please answer both. 1. High cash flow is generally associated with a higher share pric...

A: Statement 1 : High cash flow is generally associated with a higher share price whereas higher risk t...

Q: Assume your organization wishes to make a Php 200,000 investment with a private equity firm in 2021....

A: a) Year Revenue Pv factor @ 12% Discounted value 2022 5000 0.8928 4464 2023 6000 0.7971 4783 ...

Q: A family purchased a house with a 15 year mortgage at 7.375% compounded monthly. The monthly payment...

A: Mortgage are the loan which is taken by the individual to meet its financial requirements. The mortg...

Q: cational attainment, nature of their business, the daily hours of work spent on their business, the ...

A: Introduction : The given case study relates to the experimental studies and the procedure and steps ...

Q: You have a new job as a Financial Planning assistant. Your client wants to invest money in stocks, b...

A: Here we will have to formulate a linear program (LP) and then solve the problem using the solver fun...

Q: Consider a trader who takes a long position in a six-month forward contract on the euro. The forward...

A: Forward rate: $1.75 = €1 Contract size = €62500 Spot exchange rate at the maturity: $1.65 = €1

Q: What is the indicated value of the subject property using direct capitalization, rounded to the near...

A: Direct Capitalization Method: This method computes the value by dividing the net operating income re...

Q: 1. What is the annual rate of interest if ₱265 is earned in four months of an investment of ₱ 15,000...

A: Compound interest is the interest on a loan based on the total loan amount and the accumulated inter...

Q: 2. Jim Johnson, the CEO of Acme Imports Company, is focused on his next growth market. After extens...

A: The Expected monetary value analysis (EMV) is an important concept in project risk management which ...

Q: On March 15, year 1 ABC Corporation adopted a plan to accumulate P1,000,000 by September 1, year 5. ...

A: Annual deposit = X Interest rate (i) = 10%  

Q: Q3. A) If the supply price of machine is Rs. 3000 and Marginal productivity of capital is 10% , the ...

A: For Prospective income and supply price of an asset to be equal cost of capital must be at that rate...

Q: You must make a payment of $1,668.06 in 10 years. To get the money for this payment, you will make f...

A: There will be 5 deposits on: 1. Beginning of Q1 2. Beginning of Q2 3. Beginning of Q3 4. Beginning o...

Q: You are provided with the following exchange rate quotations: American Terms Bank quotations British...

A: Bid on (€/£) = 1/ Ask ($/€) Ask ($/€) = $1.4742 Bid ($/£) = $1.9712

Q: LAST YEAR ABC CO MADE PROFITS BEFORE TAX OF $2628000. TAX AMOUNTED TO $788000 ABC COMPANY SHARE CAPI...

A: Profit before tax = $2628000 Tax = $788000 Shares outstanding = 2000000

Q: Two alternative machines (A and B) have been suggested each costing 4,50,000. C. Flow After Tax (CFA...

A: The net  рresent  vаlue  (NРV)  is  the  differenсe  between  the  рresent  vаlue  оf  саsh  inflоws...

Q: Ashely Corporation has 80 million outstanding equity shares and the following projected financial in...

A: Present value of all expected future cash flows is the intrinsic value of the stock today. Hence, us...

Q: What are the key differences between leasing and borrowing assuming that the loan agreement calls fo...

A: A loan is a sort of credit instrument in which one party lends money to another in exchange for the ...

Q: A 10-year bond has a coupon of 3% and a DV01 of 8. What is the present value of just the principal?

A:

Q: Innovative Financial Inc. issues a bond with the following information: Par: $1,000 Time...

A: Par value (FV) = $1000 Period = 20 Years Quarterly period (n) = 20*4 = 80 YTM = 8% Quarterly YTM (r)...

Q: Use the following information to answer this question:   Windswept, Incorporated 2021 Income Statem...

A: Analysts typically utilize the fixed asset turnover ratio (FAT) to assess operating performance. Thi...

Q: the operating profitability ratio of company a is 2%. the return on invested capital is 10%. what is...

A: Return on invested capital (ROIC) is a calculation used to assess a company's efficiency at allocati...

Q: A beginner in business bought a machine to make canned goods for 45,000 dollars. His old machine is ...

A: Original Price of machine = 45,000 Old Machine Selling Price = 10,000 Discount = 7% Purchase Price o...

Q: Rank the following car loan descriptions from highest payment ot lowest payment. The loan amount is ...

A: For the calculation purpose, the loan amount is assumed as 1,000.

Q: 1. Guia Dee receives sa daily wage of P412 in a small company where she works 6 days a week. Find he...

A: 1) Daily wage = P 412 Number of working days in a week = 6

Q: Consider the following schedule: (Same Schedule as problem 8, repeated again here) number of years· ...

A: N = 10 Interest rate = 6% Annual Withdrawal = 500 Deposit at year 1 = 10,000 Deposit at year 5 = 15,...

Q: Currently, international reserve assets in the Balance of Payments of countries are comprised of: O ...

A: Following are the international reserve assets in the BOP of countries accounts:

Q: a) Explain the term 'annuity'. b) What is meant by 'investment appraisal? c) Explain the term 'usefu...

A: As you have asked a question with multiple parts, we will solve the first 3 parts as per the policy ...

Q: An asphalt road requires no upkeep until the end of 2 years when P60,000 will be needed for repairs....

A: As you have asked multiple questions, we will solve the first question as per the policy presented b...

Q: The Klingon Sausage Corporation is trying to choose between the following two projects: Year Cash ...

A: Profitability Index is the ratio of present value of cash inflows with present value of cash outflow...

Q: ABC Investors is interested in purchasing the bonds of the XYZ Company. ABC's bonds are currently pr...

A: The YTM of the bond can be calculated with the help of RATE function of Excel 

Q: If interest rates are expected to fall in the future, a hawkish fed will a. Sell treasury bonds to c...

A: Whenever there is a increase or decrease in the interest rate by the government, it will impact the ...

Q: ABC Company's bonds mature in 7 years, have a par value of $1,000, and make an annual coupon payment...

A: Par value of bond (FV) = $1000 Annual coupon amount (C) = $70 Years to maturity (n) = 7 Years Market...

Q: Q4.02. Calculating the future value of 1,250 compounded annually for Ja. 10 years at 6 percent. b. 1...

A: Future Value: Using an expected rate of growth, future value (FV) is defined as the worth of a prese...

Q: West Asset Management Inc. purchased a stock at $78.26 per share at the beginning of the year and he...

A: Investors invest in various securities to gain returns from the investment. This may be in the form ...

Q: n't invest; The risk is high relative to the expected return. est; All stocks revert to the SML over...

A: Security market line is based on capital assets pricing model showing risk free rate against the mar...

Q: estimated cash flows before tax (CFBT) are? 10,000; 11,000; 14,000; 15,000 and v machinery. The proj...

A: Tax rate is 55% Discount rate is 10% Depriciation Method is straight line   To Find: Average rate o...

Q: Why does business risk vary from industry to industry?

A: Business risk is an important parameter evaluated in the industry. Business risk can be defined as t...

Q: Assume that today's settlement price on a CME EUR futures contract is $1.1145/EUR. You have a long p...

A: Margin Balance is the amount deposited by the Investor in advance to settle all future expenses, if ...

Q: To expand its business, the ABC factory would like to issue a bond with par value of P1,000, coupon ...

A: The value of the bond is calculated as present value of cash flows. 

Q: Mrs. Santos deposits P5,500 at the end of every six months in a savings account for her daughter's e...

A: Deposit = 5500 every 6 months End of month deposits Interest rate = 4% semi annual period N = 21 sem...

Q: Dog Up! Franks is looking at a new sausage system with an installed cost of $800,000. This cost will...

A: Here, Cost of System is $800,000 Depreciation Method is Straight Line to Zero Life of System is 5 ye...

Q: Bob Russell purchased a home theater system for $5200, paying $500 down. The balance was financed fo...

A: APR or Annual Percentage Rate is the quote of interest rate before taking compounding into effect. I...

Q: A five-month, 5% note for $2100 is issued June 1, 2020. What is the maturity value of the note?

A: Issue price = $2100 Interest rate = 5% Period = 5 Months  

Q: ABC company has 11% expected return on assets and pays 7% on its debt. The company debt represents 4...

A: Given, Return on assets is 11% debt to total assets is 40%  

Q: What is a sales budget? a. A plan of items to be sold b. A plan of how much an item will cost c. A p...

A: Sales budget is an important budget prepared by the management of the organization.    

Q: How much would an investor expect to pay for a $1,000 par value bond with a 9% annual coupon that ma...

A: A financial instrument that doesn’t affect the ownership of the common shareholders or management of...

Q: Solve for the unknown interest rate in each of the following: (Do not round intermediate calculation...

A: Time value of money (TVM) refers to the concept which proves that the value of money today is higher...

Q: You are presented with hypothetical scenarios where questions and/or comments related to Islamic cap...

A: Futures are derivative contracts that fix the price of the contract today for execution at a future ...

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.