<span>The answer to the question stated above is liquidity.
The ease with which an asset can be converted quickly into cash with little or no loss of purchasing power is liquidity.
>>>Money is said to be perfectly liquid, whereas other assets have a lesser degree of liquidity.</span>
Answer:
Risk and Return
1. Joe is an average investor. His financial advisor gave him options of investing in stock A, with a σ of 12%, and stock B, with a σ of 9%. Both stocks have the same expected return of 16%. Joe can pick only one stock and decides to invest in stock B.
Good Financial Decision?
Yes
No
2. Marcie works for an educational technology firm that recently launched its employee stock option plan (ESOP). Marcie allocated all her investments in the ESOP.
Good Financial Decision?
Yes
No
3. rin wants to invest in a hedge fund that has had a very strong performance track record. The hedge fund has given its investors a return of over 60% for the past five years. Although Erin is tempted to put her money in the fund, she decides to conduct due diligence on the hedge fund’s assets, because she is aware that past performance is no guarantee of future results.
Good Financial Decision?
Yes
No
Explanation:
1. Joe's decision to invest in stock B is a good financial decision. Since both investments have the same returns, the decision on which investment to take shifts to the standard deviation of the returns, which specifies the variability of the returns. Invariably, the investment with less standard deviation should win the vote. Therefore, Joe's decision is a good financial decision because investment in B has a standard deviation of 9% unlike A's 12%.
2. Putting all eggs in one market as Marcie had done by allocating all her investments in the ESOP is not a good financial decision, theoretically. It is always best to spread the risks, though higher-yielding investments (returns) bear higher risks.
3. The decision of Erin to conduct due diligence on the hedge fund's assets, despite its past performance is a good financial decision. Due diligence reveals some behind-the-scene information that are instrumental in making sound business decisions. Who are the present managers of the fund? What systems are in place in the entity to guarantee similar future performance, all things being equal? What market's sentiments and information are available for consideration? These questions, and many others can be answered through a due diligence. Surely, "past performance is no guarantee of future results."
The answer is series 7 which is for investment agents <span>who want to sell </span>fixed-income<span> investment products such as bonds, stocks, and packaged products.</span>
Answer:
The required return for the new project is 6.87%
Explanation:
In order to calculate the required return for the new project we would have to calculate the Weighted Average Cost of Capital (WACC) adjusted by risk adjustment factor
.
The Weighted Average Cost of Capital (WACC) = [After Tax Cost of Debt x Weight of Debt] + [Cost of equity x Weight of Equity]
After -tax Cost of Debt = 3.40%
Cost of Equity = 10.80%
Weight of Debt = 0.39
Weight of Equity = 0.69
Therefore, the Weighted Average Cost of Capital (WACC) = [After Tax Cost of Debt x Weight of Debt] + [Cost of equity x Weight of Equity]
= [3.40% x 0.39] + [10.80% x 0.69]
= 1.32% + 7.45%
= 8.77%
The required return for the new project = Weighted Average Cost of Capital – Risk Adjustment Factor
= 8.77% - 1.90%
= 6.87%
The required return for the new project is 6.87%
