Just as we can express the beta of any investment portfolio as a market-value weighted average of the betas of the investments in that portfolio, we can express the systematic risk of each of the sources of a company’s capital in a similar manner using the Hamada equation . In other words, we can reRead more
Just as we can express the beta of any investment portfolio as a market-value weighted average of the betas of the investments in that portfolio, we can express
the systematic risk of each of the sources of a company’s capital in a similar manner
using the Hamada equation . In other words, we can represent
the systematic risk of the assets of the entire company as a weighted average of the
systematic risk of the company’s debt and equity:
According to Modigliani and Miller, the company’s cost of capital does not depend
on its capital structure but rather is determined by the business risk of the company.
As the level of debt rises, however, the risk of the company defaulting on its debt
increases. These costs are borne by the equityholders. So, as the proportionate use
of debt rises, the equity’s beta, βe, also rises. By reordering the formula of βa to solve
for βe, we get –
Here you have just imagine some data and solve it out according to rate which are given in the option , you will get the ans. Suppose Rf=3%,Market risk premi.(Rm)=4, and beta is =-0.5( take the 1st option), now you have to just check it out. So, E(r)= Rf+(Rm-Rf)beta = 3+4×(-0.5) = 2.8 So ans shouldRead more
Here you have just imagine some data and solve it out according to rate which are given in the option , you will get the ans.
Suppose Rf=3%,Market risk premi.(Rm)=4, and beta is =-0.5( take the 1st option), now you have to just check it out.
So, E(r)= Rf+(Rm-Rf)beta
= 3+4×(-0.5)
= 2.8
So ans should be option a , according you should check other option also.
Tangency is considered to be the optimum point as it's the point at which your EF touches the tangent which provides you with optimum level of return with the desired risk level. If you choose a point below it, it means you're lending at rf generally a highly risk averse investor does this whereas,Read more
Tangency is considered to be the optimum point as it’s the point at which your EF touches the tangent which provides you with optimum level of return with the desired risk level.
If you choose a point below it, it means you’re lending at rf generally a highly risk averse investor does this whereas, if you choose a point above the tangent, you’ll be borrowing at rf and investing at the risky asset which a high risk appetite person does.
Option C is a barrier as there is disagreement between standard setting bodies and regulatory agencies. Business groups have always opposed convergence as they find it troublesome to adopt IFRS and you know the reason as to why. There might a printing mistake in the text. Thank you.
Option C is a barrier as there is disagreement between standard setting bodies and regulatory agencies.
Business groups have always opposed convergence as they find it troublesome to adopt IFRS and you know the reason as to why.
There might a printing mistake in the text. Thank you.
Real Estate is a highly leveraged industry wherein plenty of projects are operating and most of the projects likewise houses, buildings, etc are built by taking loan against some collateral. Due to hefty borrowing and leveraged industry, Investors tend to be cautious due to borrowing and with intereRead more
Real Estate is a highly leveraged industry wherein plenty of projects are operating and most of the projects likewise houses, buildings, etc are built by taking loan against some collateral. Due to hefty borrowing and leveraged industry, Investors tend to be cautious due to borrowing and with interest rates fluctuations at the same time. Real Estate Industry is a cyclical industry. Not all the RE businesses are profitable. Financial leverage is the use of debt to buy assets or build revenue generating models. A huge interest cost is going every quarter, month..or whatever the case is. Therefore it becomes a significant measure to check before investing in RE busines. Cost of debt is used in WACC calculations for valuation analysis, it is lower than equity (since debt holders are always paid out before equity holders; hence, it’s lower risk). Leverage, however, will increase the volatility of a company’s earnings and cash flow, thereby increasing its cost of debt which in turn will also increase a company’s cost of equity (since investors will also become cautious due to high borrowings of the business and skeptical about the potential ROI on their investment and will demand a high risk premium)
beta equity = beta asset + (beta asset – beta debt)D/E
Just as we can express the beta of any investment portfolio as a market-value weighted average of the betas of the investments in that portfolio, we can express the systematic risk of each of the sources of a company’s capital in a similar manner using the Hamada equation . In other words, we can reRead more
Just as we can express the beta of any investment portfolio as a market-value weighted average of the betas of the investments in that portfolio, we can express
the systematic risk of each of the sources of a company’s capital in a similar manner
using the Hamada equation . In other words, we can represent
the systematic risk of the assets of the entire company as a weighted average of the
systematic risk of the company’s debt and equity:
Beta asset = D/V(total value)* beta d + equity/V (total value)*Beta equity
According to Modigliani and Miller, the company’s cost of capital does not depend
on its capital structure but rather is determined by the business risk of the company.
As the level of debt rises, however, the risk of the company defaulting on its debt
increases. These costs are borne by the equityholders. So, as the proportionate use
of debt rises, the equity’s beta, βe, also rises. By reordering the formula of βa to solve
for βe, we get –
beta equity = beta asset + (beta asset – beta debt)D/E
See lessEthics Standard III (A)
Please share the full example along with solution.
Please share the full example along with solution.
See lessPortfolio management
Not sure but it seems that the rate given in the question is annualized rate, please confirm. Thank you.
Not sure but it seems that the rate given in the question is annualized rate, please confirm. Thank you.
See lessPortfolio management
Here you have just imagine some data and solve it out according to rate which are given in the option , you will get the ans. Suppose Rf=3%,Market risk premi.(Rm)=4, and beta is =-0.5( take the 1st option), now you have to just check it out. So, E(r)= Rf+(Rm-Rf)beta = 3+4×(-0.5) = 2.8 So ans shouldRead more
Here you have just imagine some data and solve it out according to rate which are given in the option , you will get the ans.
See lessSuppose Rf=3%,Market risk premi.(Rm)=4, and beta is =-0.5( take the 1st option), now you have to just check it out.
So, E(r)= Rf+(Rm-Rf)beta
= 3+4×(-0.5)
= 2.8
So ans should be option a , according you should check other option also.
Portfolio management
Tangency is considered to be the optimum point as it's the point at which your EF touches the tangent which provides you with optimum level of return with the desired risk level. If you choose a point below it, it means you're lending at rf generally a highly risk averse investor does this whereas,Read more
Tangency is considered to be the optimum point as it’s the point at which your EF touches the tangent which provides you with optimum level of return with the desired risk level.
If you choose a point below it, it means you’re lending at rf generally a highly risk averse investor does this whereas, if you choose a point above the tangent, you’ll be borrowing at rf and investing at the risky asset which a high risk appetite person does.
Hope this helps!
See lessPortfolio management
The graph isn't visible, you may have forgotten to share the same, please check. Thank you.
The graph isn’t visible, you may have forgotten to share the same, please check. Thank you.
See lessFR standards
Option C is a barrier as there is disagreement between standard setting bodies and regulatory agencies. Business groups have always opposed convergence as they find it troublesome to adopt IFRS and you know the reason as to why. There might a printing mistake in the text. Thank you.
Option C is a barrier as there is disagreement between standard setting bodies and regulatory agencies.
Business groups have always opposed convergence as they find it troublesome to adopt IFRS and you know the reason as to why.
There might a printing mistake in the text. Thank you.
See lessConflict of Interest in rating agencies
Please share the full question
Please share the full question
See lessGENERAL DOUBT
The first option is appropriate i guess.
The first option is appropriate i guess.
See lessPvt equity RE
Real Estate is a highly leveraged industry wherein plenty of projects are operating and most of the projects likewise houses, buildings, etc are built by taking loan against some collateral. Due to hefty borrowing and leveraged industry, Investors tend to be cautious due to borrowing and with intereRead more
Real Estate is a highly leveraged industry wherein plenty of projects are operating and most of the projects likewise houses, buildings, etc are built by taking loan against some collateral. Due to hefty borrowing and leveraged industry, Investors tend to be cautious due to borrowing and with interest rates fluctuations at the same time. Real Estate Industry is a cyclical industry. Not all the RE businesses are profitable. Financial leverage is the use of debt to buy assets or build revenue generating models. A huge interest cost is going every quarter, month..or whatever the case is. Therefore it becomes a significant measure to check before investing in RE busines. Cost of debt is used in WACC calculations for valuation analysis, it is lower than equity (since debt holders are always paid out before equity holders; hence, it’s lower risk). Leverage, however, will increase the volatility of a company’s earnings and cash flow, thereby increasing its cost of debt which in turn will also increase a company’s cost of equity (since investors will also become cautious due to high borrowings of the business and skeptical about the potential ROI on their investment and will demand a high risk premium)
Hope it helps!
See less