1. How do you measure return? 2. How do you derive arithmetic average return? 3.
ID: 2649417 • Letter: 1
Question
1. How do you measure return?
2. How do you derive arithmetic average return?
3. How do you find standard deviation of return?
4. What is risk and return trade off? What is risk and return dominance?
5. What is diversification? How does portfolio risk relate to the number of assets in the portfolio?
6. How do you measure the risk of a stock that cannot be diversified away? How do you measure beta of a stock?
7. How do you determine the risk premium of a stock based on its beta? How do you determine the required rate of return of a stock?
8. How do you determine the value of a stock?
9. How do you determine whether a stock is overpriced, underpriced or fairly priced?
10. How do you determine the required rate of return of a bond? How do you determine the price or value of a bond?
11. How do you determine the promised yield to maturity of a bond? How is the risk of a bond related to its value and to its promised yield to maturity?
12. What is the relationship between the risk, return and value of a bond or a stock or any financial asset?
13. What is cost of debt?
14. What is the cost of equity?
15. What is the weighted average cost of capital? What is the market value weight?
16. What is internal rate of return? How is internal rate of return used in making investment decisions?
17. What is net present value? How is net present value used in investment decisions?
18. What is operating leverage? What is the cause of operating leverage? What is the effect of operating leverage? How do you measure the degree of operating leverage?
19. What is financial leverage? What is the cause of financial leverage? What is the effect of financial leverage? How do you measure the degree of financial leverage?
20. What is combined leverage? How do you measure the degree of combined leverage?
Explanation / Answer
Q16) IRR is the rate at which PV of cash infows is equal to PV of cash Outflows. If IRR is greater than discount rate then project should be accepted and if IRR is less than Discount rate then project should be rejected. Q17 NPV is the difference between PV of cash inflws and PV of cash outflows. Present value is computed by takeing the discount rate. If NPV is positive then project should be accepted and iof NPV is negative then project should be rejected. Q18 Operating leverage measures a company
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