Year Project Pizza (100,000) 50,000 50,000 1. Given the cash flows above and a discount rate of 5%, compute the payback period and NPV of Project Pizza. 2. If PHP50,000 is earned on the 3rd year of the project, what is the new NPV of the project? What is the payback period?

Q: Compare M&M Theorem Proposition 1 and Proposition 2 in perfectly efficient market and in the real…

A: The M&M (Modigliani & Miller) approach is used to make investment decisions easily by…

Q: 76. You often hear about the trade-off between risk and reward. Is this trade-off part of decision…

A: Higher risk usually leads to higher profits. An investor will be able to make only a risk-free rate…

Q: What are the differences between a money market and a capital market?

A: Two main sources of finance are: Internal sources External sources. Company requires funds for…

Q: Under what circumstances is stand-alone and market risk most relevant?

A: Stand-alone risk is the risk associated with a single investment or project, and it is typically…

Q: _______ is a measure of risk while _______ is a measure of risk and liquidity.

A: Capital budgeting is the process of distributing the resources(finance) of the organization in…

Q: Explain risk arbitrage

A: It is a venture system to benefit from the narrowing of a hole of the exchanging cost of an…

Q: Market risk cannot be eliminated. OA. True OB. False

A: The financial market can be defined as the market place which includes the trading of securities and…

Q: The desired rate of return on an investment should reflect the degree of risk involved. A.   True…

A: Riskier investments may give higher returns to the investors as they provide favorable ratio of risk…

Q: How would the risk premium work out for a riskier investment?

A: A risk premium is a return on venture over the hazard free rate a financial specialist requires to…

Q: Explain why risk adjustments are important and how they can affect firm value.

A: Risk adjustments are a critical component of financial analysis and investment decision-making,…

Q: Why does standalone risk differ from portfolio risk? Explain and give examples! Relates your answer…

A: While making an investment, an investor is required to thoroughly examine all types of risks and…

Q: The market efficiency hypothesis claims that, as a rule, the market value and intrinsic value of a…

A: The market  efficiency hypothesis posits that security prices reflect all available information,…

Q: 17. Liquidity risk is a chance that an investment cannot be easily liquidated: True False

A: As per Bartleby Honor Code, when multiple questions are asked, the expert is required only to solve…

Q: hat is an arbitrage opportunity? plain very briefly.

A: Arbitrage is risk free and a certain profit is available in the market due to the market not in…

Q: Q2. Explain the effect of diversification on risk. Be specific about the types of risk.

A: One of the most basic risk management strategies, diversification is an important factor that plays…

Q: Finaancial risk is not directly associate with..    a) ROE b) EBIT c) EPS d) EAT

A: The Financial risk is a risk of loosing money on am investment or investment opportunities.…

Q: What does it mean that portfolio diversification can reduce risk, and how does the efficient…

A: Risk is the measurable probability of loss on an investment. It includes the possibility of losing…

Q: How can an investor eliminate Unsystematic Risk?

A: There are two types of risks: 1) Systematic risk 2) Unsystematic risk. Systematic risk is non…

Q: Market risk ________.   a. is equal to the rate of return generated by a risk-free asset b.…

A: By simple diversification the total risk can be reduced but can not be totally eliminated. The…

Q: Market potential is an example of an economic risk measure. O True O False

A: Market potential refers to the expected total sales or revenue from a market, whereas an economic…

Q: Which statement best describes the concept of risk? A) Under a situation of risk, future outcomes…

A: When you invest money than there is uncertainty related and not sure how much you would earn or how…

Q: What impact does each of the followingparameters have on the value of a call option?(4) Risk-free…

A: An agreement where the holder has a right to purchase or sell the shares at a specific price at a…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.