Business Coursework: Measure of Risk, Context of Portfolios (Essay Sample)
1. Discuss the stages in the capital-budgeting process.
2. How do “mutually exclusive” and “independent” projects differ?
3. What kinds of nonfinancial information are needed in order to conduct the analysis of a project?
Briefly describe what is meant by the time value of money.
What is a risk-adjusted discount rate? How are risk-adjusted discount rates determined for individual projects?
What is the meaning of discounting? Provide an illustration.
1. What is meant by the coefficient of variation? How is it used as a measure of risk?
2. Explain the terms diversification and correlation in the context of forming portfolios.
3. Describe the meaning of a “state of nature” and explain how this concept is used to provide expected measures of return and risk.
4. What are the differences among the weak, semi strong, and strong forms of the efficient market hypothesis?
5. Explain marketability risk and marketability premium.
6. Why is risk an increasing function of time?
7. Discuss how the standard deviation, a statistical measure of dispersion, is used in investment analysis?
Business and Marketing
Business and Marketing
There are five steps to capital budgeting, the first one being identifying and evaluating the available or potential opportunities. This is then followed by estimating the operation and implementation costs, estimating cash flow, assessing the risks and the implementation aspect (Motley, 2016).
With mutually exclusive projects, it means that accepting one investment will also mean rejecting another. With the independent projects, they can both be accepted and run separately.
Nonfinancial information used in project analysis, may include evaluating future legislations, industry standards, staff morale, relationships with suppliers and customers and future threats.
The time value of money is basically based on the idea that money that is available at the present time is worth more than the same amount in the future relative to the earning capacity potential it will have.
Risk adjusted discount is an estimation of the present value of cash with reference to a risk investment. For individual projects, periodical returns by investors are represented for the element of pulling funds to a specific project.
Discounting on the other hand relates to determination of the present value of any payment which are to be received in the future. Given the time value of money, the dollar is worth more today that will be worth tomorrow. A product can be sold at a lower price/tomorrow's price than the current price/today's price. If a computer, for example, is worth a thousand dollars today, it will be worth less than a thousand dollars in six months&...
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