Fin301 Module 3 Case
TUI
CAPM &Sources for Capital
Module 3/ Case
09/25/2012
FIN301
Dr. Jensen
CAMP & Sources for Capital
This is a two part report based on the Principles of Finance regarding CAMP and Sources for Capital. Included in this report will be the following information:
Part 1: There will be scenarios that will be explained in regards to diversifiable or un-diversifiable.
Part 2: American Superconductor
Part 1 “For each of the scenarios below, explain whether or not it represents a diversifiable or an un-diversifiable risk,” (module 3 case).
(A) A substantial unexpected increase in inflation would be considered an un-diversifiable risk (systematic or market risk) from the stand point that inflation is not specific to an individual stock. (McClure). However, there are some ways to diversify and clash inflation. Investing in natural resources such as oil, gas, precious metals, and timber is one way to diversify against inflation. (Kokomo Perspective, 2011)
(B) “A major recession in the U.S.,” (module 3 Case) would be considered an un-diversifiable risk (systematic or market risk) from the position that a recession is not specific to an individual stock. (McClure) However, there are some ways to diversify against a recession. Investing in foreign currency, stocks along with agricultural staples such as wheat would help shield a portfolio against a recession. (CNBC.com, 2008) (C) “A major lawsuit filed against one large publicly traded corporation;” (Module 3 Case) is a diversifiable risk (unsystematic risk) for the reason that it is specific to that corporation’s individual stock. As a result of having other stocks in the portfolio the overall outcome, of the portfolio is not as affected by this one stock. (McClure)
(2A) Using the CAPM formula of: ra=rf+[Ba(rm-rf)]; the Expected Rate of Return on the Market Portfolio given that the Expected Rate of Return
CAPM &Sources for Capital
Module 3/ Case
09/25/2012
FIN301
Dr. Jensen
CAMP & Sources for Capital
This is a two part report based on the Principles of Finance regarding CAMP and Sources for Capital. Included in this report will be the following information:
Part 1: There will be scenarios that will be explained in regards to diversifiable or un-diversifiable.
Part 2: American Superconductor
Part 1 “For each of the scenarios below, explain whether or not it represents a diversifiable or an un-diversifiable risk,” (module 3 case).
(A) A substantial unexpected increase in inflation would be considered an un-diversifiable risk (systematic or market risk) from the stand point that inflation is not specific to an individual stock. (McClure). However, there are some ways to diversify and clash inflation. Investing in natural resources such as oil, gas, precious metals, and timber is one way to diversify against inflation. (Kokomo Perspective, 2011)
(B) “A major recession in the U.S.,” (module 3 Case) would be considered an un-diversifiable risk (systematic or market risk) from the position that a recession is not specific to an individual stock. (McClure) However, there are some ways to diversify against a recession. Investing in foreign currency, stocks along with agricultural staples such as wheat would help shield a portfolio against a recession. (CNBC.com, 2008) (C) “A major lawsuit filed against one large publicly traded corporation;” (Module 3 Case) is a diversifiable risk (unsystematic risk) for the reason that it is specific to that corporation’s individual stock. As a result of having other stocks in the portfolio the overall outcome, of the portfolio is not as affected by this one stock. (McClure)
(2A) Using the CAPM formula of: ra=rf+[Ba(rm-rf)]; the Expected Rate of Return on the Market Portfolio given that the Expected Rate of Return