Summary: Risk and Return - Corporate Finance [EMNF2724]
8 views 0 purchase
Course
EMNF2724 (EMNF2724)
Institution
University Of The Freestate (UFS)
Book
Corporate Finance
Notes of a second year student studying Bachelors of Accounting at the University of the Free State. With this notes that i have compiled, i was able to proudly say that i received a distinction in Financial Management by using this notes. If you are struggling with Financial Management use this no...
Summary: Ratio Analysis - Corporate Finance [EMNF2724]
All for this textbook (14)
Written for
University of the Freestate (UFS)
EMNF2724 (EMNF2724)
All documents for this subject (13)
Seller
Follow
Acc07
Reviews received
Content preview
CAPM formula
LU 11: Risk and return (chapter 10) • Model is based on comparison of returns on individual
investments and shares with return on market as a
Capital asset pricing model (CAPM) and Securities market line (SML)
whole.
• Company’s exposure to constant market fluctuations
High risk = Higher return
Low risk = Lower return
Government bonds Shares/Equity (market returns) is referred to as systematic (or
market) risk of a company.
CHEAPER why? More risky
- Less risk (virtually risk free) formal - No guaranteed • CAPM makes major and fundamental assumption:
contract that guarantees payment payments Linear relationship between the return on the shares
- Tax benefit - No Tax benefit of an individual company and return on market
portfolio.
Rf = risk free rate of
Ri = Rf + (Rm – Rf)
return
Government bonds
used as risk free
Beta-factor is a measure of a share’s return volatility in relation to
a broad index such as the all share index. The non-diversifiable risk
Rf = return on risk free investments
>1 shares = aggressive; outperform the market
+ market return: bigger return than market
- market return: bigger loss than market
Rm = average market return
=1 shares = neutral
(Rm – Rf) = market risk premium
returns are in line with average market return
<1 shares = defensive
less risky than market generally
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Acc07. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $2.85. You're not tied to anything after your purchase.
