finance hwk_ wk5

finance hwk_ wk5 - Chapter 6 FINS 1612 1. Investors must...

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Chapter 6 FINS 1612 1. 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). 2. (a) Risk comprises of the uncertainty, probability, variance and volatility of an investment. Systematic risk 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. Unsystematic risk 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 investment portfolio. 3. (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%. (b)
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finance hwk_ wk5 - Chapter 6 FINS 1612 1. Investors must...

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