Corporate Risk questions

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QUESTIONS- please make sure each answer is a minimum of 180 words.

1.Critically evaluate the following statement: Playing the stock market is like gambling. Such speculative investing has no social value, other than the pleasure people get from this form of gambling.

2.What is the difference between arithmetic and geometric returns? Suppose you have invested in a stock for the last 10 years. Which number is more important to you, the arithmetic or geometric return

3.In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk?

4.True or false: The most important characteristic in determining the expected return of a well-diversified portfolio is the variances of the individual assets in the portfolio. Explain

5.How does the capital asset pricing model work and how is it used to measure risk?

6.What is the purpose of the Weighted Average Cost of Capital model? How does increasing debt financing or equity financing affect the results in this model?

7.What are some of the different asset classes that a company can invest in? Which ones have been some of the top performers this year? Which ones have been top performers over the last 3 years? 5 years? 10 years? Which asset classes are most volatile

8.Forward Contracts vs Future Contracts

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Explanation & Answer

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Running head: CORPORATE RISK

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Corporate Risk
Name
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CORPORATE RISK

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Corporate Risk

Critically evaluate the following statement: Playing the stock market is like
gambling. Such speculative investing has no social value, other than the pleasure
people get from this form of gambling.
There is a difference between investing and gambling, and the identification of
the differences of the activities is essential in helping to motivate investors on the
areas that they need to focus given the possible returns of the stock. Unlike gambling,
in the stock market, everybody can be a winner, and this is due to the provision of the
market liquidity that helps in increasing the efficiency of the operation of the stock
market. The control of the stock market is through the events that take place in the
economy, and this means that there is differentiation from the use of odds and this
determines the need for winning the game.
The chances in a game of gambling entail winning or losing the game, and this
leads to the need to focus on the luck of getting the winning odd. In the stock market,
there is focus on the changes taking place in the market and the implementation of the
changes that require the profitability of the stocks bought in the long run. It
encourages the analysis of the changes taking place and the need to enhance the
support of the economic activities.
What is the difference between arithmetic and geometric returns? Suppose you
have invested in stock for the last ten years. Which number is more important to
you, the arithmetic or geometric return
The types of returns are essential as they help in the determination of the kind
of investment that an individual makes and the observation of the changes taking
place in the market. The arithmetic return refers to the averages that are calculated
every day, and this means that there is taking of a series of returns and dividing by the

CORPORATE RISK
number to identify the return. It helps in the calculation of th...


Anonymous
Awesome! Perfect study aid.

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