Risk aversion

portfolio beta= w1b1+w2b2 w1 = 20,000/55,000= .3636 w2= 35,000/55,000= .6364 portfolio bet= .3636*.7 + .6364*1.3 = 1.082 Required rate of return AA industries = risk free rate + market risk premium*beta AA industries ri = rRF + (rM - rRF)b 4% + (12%-4%)*.8 = 10.4% required return= risk free rate+ market risk premium*beta ri = rRF + RPM* b Market- required return= 5%+7%= 12% Beta of 1- required return= 5%+ 7%*1= 12% Beta of 1.7- required return= 5%+ 7%*1.7 = 16.9% = P1r1+P2r2+P3r3+

account pays. For different investors with different attitudes towards risk, the alternative investments undertaken with their $2000 and the rates of return expected on those investments might differ. The opportunity cost of this minimum balance requirement for very risk averse investors is not as great as for those with greater risk tolerance, since very low risk investments have a lower rate of return than assets exposed to market risk. 4)Several years ago most major countries signed an agreement to

The General Theory was formally introduced in the 1936 by Keynes and This theory Introduce the relationship between consumption and income, it was the first discussed about saving motives (Fisher et al. 2010). The Modigliani’s Life-Cycle Theory was formally introduced by Modigliani e Brumberg (1954) (Browning & Lusardi, 1996). The life-cycle theory incorporate socioeconomic variables an uncertain future and relationship between saving and the age-structure of the population. According to this perspective

FINCH INC. RISK AND RETURN a. (1) Why is T-bill’s return independent of the state of the economy? Do T-bill’s promise a completely risk-free return? Explain (2) Why are High Tech’s returns expected to move with the economy, whereas, Collections’ are expected to move counter to the economy? 1. The 5.5% T-bill return does not depend on the state of the economy because the Treasury must redeem the bills at par regardless of the state of the economy; therefore, T-bills are risk-free in the

In other words,there is a greater risk involved with continuing when the remaining cases are very far apart than when they are close together. Two sets of cases can have the same expected value, yet have much different risk levels associated with not taking the deal. A large standard deviation will mean that there is more risk of getting a substantially lower pay-out than if there is a small standard deviation. Take, for example

Company face a variety of risks in holding its shares. If the economy falters, people tend to travel less and so there is less demand from the airlines industry for Exxon's fuels. This type of risk that Exxon's shareholders bear is Specific/Idiosyncratic Risk.

Introduction Pearson Publishing is a very well established and known publisher which has a lengthy past of Excellency in delivering school resources, curriculum and leading the history of delivering essential curriculum resources to schools and became a market leader in way use of technology. Pearson publication holds 47% shares of the world’s largest publishers of books Penguin random house, as well as also holds 50% share in Economist Group, which is known to be specialised in international business

decision-making acts a crucial role in business investment that depends upon the investor’s profit expectation, the availability to finance the investment and the potential cost of assets. (Virlics, 2013) However, risk and uncertainty are the basic terms to the decision-making framework. Risk can be defined as the probability of outcomes or loss that is caused by internal or external vulnerabilities where the probabilities of the possible negative occurrence

Assignments from the Readings Write a 700- to 1,050-word paper in which you respond to the questions at the end of the case study. 1. P5-3 Sharon Smith, the financial manager for Barnett Corporation, wishes to evaluate three prospective investments: X, Y, and Z. Sharon will evaluate each of these investments to decide whether they are superior to investments that her company already has in place, which have an expected return of 12% and a standard deviation of 6%. The expected returns and

| Decision Usefulness Approach | Can the decision usefulness approach make financial reporting more useful? | | | | | Prepared by Jing Wang Abstract This paper explores the question whether the financial statements can be made more useful. This leads to an important concept in accounting-- the concept of decision usefulness. To properly understand this concept