It is a part that can be eliminated by diversification .
2.What is preferred stock?
Stock with dividend priority over common stock, normally with a fixed dividend rate,sometime without voting rights.
3.What is risk premium?
The excess return required from an investment in a risky asset over that required from an risk-free investment.
4.What is principle of diversification?
Spreading an investment across a number of asset will eliminate some, but not all,of the risk.
5.What is systematic risk?
A risk that influences a large number of assets.
6. What is unsystematic risk?
A risk that affects at most a small number of assets.
7.What is portfolio theory?
Group of assets such as stocks and bonds held by an investor.
8.What is Internal rate of return (IRR)?
The discount rate that makes the net present value of an investment zero.
9. What is the term structure of interest rates?
The relationship between short and long term interest rates.
10.What is incremental cash flows?
The different between a firm’s future cash flows with a project and those without the project.
1.Please discuss on the relationship between bond valuation and interest rate. Some people said that if the US government withdraw from the current policy of quantitative easing (QE), the bond prices in the US market will decrease? Do you agree? Why?
When the interest rate, the present value of bond declines.When the interest rate fall ,the present value of bond rises.Agree,QE is a process of increasing the money supply, as a result, the interest rate will fall with the running of QE. If the US government withdraw the QE, the money supply will decrease, and the interest rate will rise, so the present value of bond will decline.
2. According to the CAPM, the expected return on a risky asset depends on three components. Describe each component, and explain its role in determining expected return. 1.According to the CAPM