working of financial system

May 28th, 2015
Studypool Tutor
Abilene Christian University
Price: $25 USD

Tutor description

We typically get the appropriate Beta from our comparable companies (often the mean or median Beta). However before we can use this “industry” Beta we must first unlever the Beta of each of our comps. The Beta that we will get (say from Bloomberg or Barra) will be a levered Beta. Recall what Beta is: in simple terms, how risky a stock is relative to the market. Other things being equal, stocks of companies that have debt are somewhat more risky that stocks of companies without debt (or that have less debt). This is because even a small amount of debt increases the risk of bankruptcy and also because any obligation to pay interest represents funds that cannot be used for running and growing the business. In other words, debt reduces the flexibility of management which makes owning

Word Count: 2607
Showing Page: 1/12
Definition of 'Risk':The chance that aninvestment's actualreturnwill bedifferentthan expected.Risk includes the possibility of losing some or all of the original investment.Different versions of riskare usually measured by calculating thestandard deviationof thehistorical returnsoraverage returnsof a specific investment. A high standard deviation indicates a high degree of risk.Many companies now allocate large amounts of money and time in developingrisk managementstrategies to help manage risks associated with their business and investment dealings. A key component of the risk management process is risk assessment, which involves the determination of the riskssurrounding a business or investment.A fundamental idea in finance is the relationship between risk and return. The greater the amount of risk thatan investoris willing to take on,the greater the potentialreturn.The reason for this is that investors needto be compensated fortaking onadditionalrisk.For example:A U.S.Treasury bondis considered to be one of the safest (risk-free) investments and, when compared to acorporate bond, provides a lowerrate of return. The reason for this is that acorporationis much more likely to gobankruptthan the U.S. government. Because the risk of investing in a corporate bond is higher, investors are offered a higher rate of return.Types of RiskUnfortunately, the concept of risk is not a simple concept in fina

Review from student

Studypool Student
" Friend recommended me, and managed to get a slight discount. Great work from the tutor and had no issues with plagiarism, which I was super worried about. "
Ask your homework questions. Receive quality answers!

Type your question here (or upload an image)

1825 tutors are online

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors