In the event where there is a fall in the spot price, any financial gains from a hedging program may be seen as speculative returns. Typically there is no perfect hedging in reality as it is difficult to have three features of a futures contract matches with the asset to be hedge. When there is an imperfect hedge, the loss in the spot market may not be covered by the gain in the futures. The importance to realize that hedging using futures contracts can result in a decrease or an increase in profits relative to its position with no hedging. If the price of oil drop, the futures position leads to an offsetting gain.
Alternative rational explanations of the disposition effect do not fare well either. The empirical realization pattern is very different from that predicted for an investor considering taxes and portfolio rebalancing. Holding on to losing shares is not motivated by a belief in mean-reverting returns; the marginal tendency to realize a loss is actually smaller if a stock has recently outperformed the market. Finally, it does not appear that holding on to losing shares is due to investors acting on target prices, based on their subjective assessment of the stock’s fair value. Given the evidence discussed above, the question
Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks). To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results.
Another action should be taken is that they should change acquisitions structure since companies they acquired are also asset sensitive so it makes sense to even stop acquisitions to prevent being asset sensitive. Basically, fixed- rate assets should be used instead of swaps to eliminate asset sensivity. To gain trust of market, Banc One Corporation should educate its analyts and investors about usage of swaps so that perception to riskiness of swaps could be changed in a good way as well as more disclosure is needed for this. Indeed, usage of swaps basically has many advantages. Since, swaps durations are shorter than many fixed- rated investments, usage of swaps improves liquidty of firms meaning campanies would raise cash easily when they need it using swaps because of the short- term structure of them.
The assumption of the project cash flows are reinvested at IRR are not included. This makes MIRR has better signal of a project’s true profitability. Once there is conflict between IRR and NPV, MIRR method can be used. Project with higher MIRR should be preferred. G. (2) What are the MIRR’s advantages and disadvantages vis-à-vis the NPV?
A low P-E might indicate a number of negative factors, including, but not limited to projected lower earnings. However, it is important to note that each value should be looked at in combination with other factors" (http://www.nasdaq.com/symbol/uaa/stock-comparison#ixzz4c0AX6iOB). This may not be the case for Under Armour as the company 's retained earnings continue to increase. Although, these negative values should be frequently considered when investing in the company because the more negative the ratio becomes, the less money the company may be earning, and as a result may reduce interest from potential investors. Dividend Payments: According to Figure 5.3, $59,000,000 in dividends were paid.
The high cost and low quality of the current system creates the obvious reality that the status quo is failing. The government has tried a free-market and universal approach to the issue, and they have both failed to accurately combat the current problems. A Single payer system may, in fact, increase taxes, but it would help business which, in turn, would help the American economy as a whole. A single payer system is an effective way to completely eradicate the current problems. The issue of climbing premium would no longer be an issue under Single Payer policy, as it effectively circumvents the issues with risk in the health insurance market.
The main change faced by researchers is the relatively few studies conducted on capital structure determinants in the GCC. Another is that countries in the GCC operate in a tax free environment. This eliminates the tax free advantage in determining capital structure as pointed out in the trade off theory (Hait, 2012). Apart from the tax free environment, firms operate in an environment that makes them unique from other emerging markets. For example, capital markets are less developed than other emerging markets (Bley and Chen, 2006).
A global common currency was first proposed by John Maynard Keynes, in which a single currency could bring new strengths and opportunities arising from the integration and scale of a global economy, making a single market more efficient. With a new common currency, the extra costs, risks, and a lack of transparency in cross border transactions, are eliminated. This hence makes doing international business more cost-effective and less risky, and even help to encourage foreign direct investment (FDI). Nations benefit this way, as a common currency would not suffer from inflation, allowing a provision of stable currency. Also, a singe common currency would cause a sort of levelling of the playing field, where countries can no longer devalue currencies to boost exports.
The disadvantage of owning a variety of assets is that investors will never be able to fully capture the gains and returns. Diversification has a net effect that enables slow and careful performances and smoother returns, never shifting upward or downward too quickly. The reduced volatility that comes from portfolio diversification helps ease financial distress in investors. The risk of diversification While diversification is a simple way for investors to reduce portfolio risk, it is unable to eliminate risk entirely. There are two broad types of investment risk: Market Risks.