Understanding Concepts Return Stock, Risks, Portfolio, Beta, Wacc

559 words - 3 pages

Question 1.

Identify the components of a stock's realized return.

The two main components of a realized return or two sources are the dividend and the change of price

during the period, in other words if you buy stock for x amount of money, at a later time all the

money that you have received is your return realized and is the real cash flow of the stock realized

return ,also in a different view on the realized return components , Problem ,Plan Execute ,Evaluate .

Question 2

Contrast systematic and unsystematic risk.

On this is a very simple meaning a stock is purchase some of this are well plan in the monetary gain to

have during a period of time and is systematically selected and planed of, what is expected and the risk

that will balance a common risk that is acceptable, on the other ...view middle of the document...

just because the complete

amount is not in one only is combine like in this case company A & B.

Question 4

State what beta measures and issues.

The beta is the way the stock sensitivity function depending on the respective stocks industry if the

market change the return will change and is based on 1% of respectively industry and this can be

calculated up to a point in a systematic way, the issues are the change in the market for the individual

firm the return will change but in reality that is on all portfolio created for any investor's .

UNDERSTANDING CONCEPTS STOCKS RISK 5

Question 5

States what WACC measures and explain the WACC assumptions used to value a project.

The weighted average cost of capital (WACC) is what any firm actual value is and to know this there

debt that actually have today,the equity ,the cost of capital to actually run the firm ,all this is weighted

and compare to the capital value of the firm and is done by looking at the right side of the firm balance

sheet and compare to the market value to compare proportions and see the historical cost ,future and

expected productivity and assets value but not the book value ,in a simple form it tell you what cost to

run the company today ,and on the past history that tell you ifit show that in the future will be a

profitable company that will bring the interest to invest or continue in business .

UNDERSTANDING CONCEPTS STOCKS RISK 6

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