Chapter 6 FINS 1612
Investors must consider a range of issues including : liquidity , risk, integrity (of the
company, management, share market), charges (transaction costs), return, capital
growth, accessibility (depth and liquidity in primary/secondary markets), flexibility,
taxation, social security (effect of investment on the income test and assets test),
efficient price discovery (information transparency, current price), type of investing
(passive or active).
(a) Risk comprises of the uncertainty, probability, variance and volatility of an
refers to factors that affect the price of the majority of
shares listed on a stock exchange. Such factors include: movements in interest rate,
exchange rates, contraction/expansion in economic activity, introduction of new
legislation, political stability and changes in the market confidence and perception.
refers to factors that affect the share price of a particular
corporation. Such factors include: resignation of an executive manager, change in
future performance forecasts, failure of technology, dissent within the board of
directions, financial difficulty.
(b) Investors are able to minimise their unsystematic risk by diversifying their
(a) The beta coefficient indicates the amount of systematic risk involved in a
particular share relative to the average share listed in the stock exchange. The
accepted/average beta coefficient is approximately 1.0. In the table , both Ocka
Limited and Mega Bank limited have a systematic risk LOWER than the accepted
average at 70% & 80% respectively. However, Techno Limited has a HIGHER
systematic risk than the average at 120%.