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SafeAssign Originality Report FIN307 Principles of Finance I (09-FEB-22 - 05-APR-22 [2050]) • W3 Assignment
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Financial Statements and Ratio Analysis
Latasha Felder
Grantham University
Debra Touhey
Principles Of Finance
March 1, 2022
Risk in general; stand-alone risk; probability distribution and its relation to risk
In general, risk is the chance that something bad will happen and cause you to lose money, damage, or be sued. This can happen because of flaws in the outside world or inside your own body (Calvet et al., 2022). Risk that is unique to a single business or asset is called "standalone risk." Management of a stand-alone risk is done by freezing the entity that is linked to the risk. Probability distribution is a model used in statistics to show how likely it is that an event will happen (Yampuler, 2019). Expected rate of return, ^r
Expected return is the expected profit or loss that will come from an investment. By figuring out the probability distribution average of all the possible returns,
you can figure out the expected rate of return.
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Efalken.(n.d) http://www.efalken.com/papers/RRsec1.html
In finance risk is the possibility that the return of investment will be at a lower figure than the expected return. Probability distribution can be used to predict the
future outcomes of an event based on the historical figures and records of an organization hence assisting in predicting the future risks that are likely to occur for a particular entity. Expected rate of return provide investors with the knowledge of whether is investment likely to be successful or not.
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Continuous probability distribution
When a random variable takes all possible values and real numbers within a specified range, this is referred to as a continuous probability distribution. In this
distribution, the random variable is believed to be continuous in nature, as opposed to discrete (Yampuler, 2019). Standard deviation, σ; variance, σ2
The square root of the discrepancy between the data points and the mean is used to calculate variance (2). The standard deviation of a data set is a measure of
how far it is from the average or mean of the data set (Robertson, 2020). Risk aversion; realized rate of return, r
When an investor has two options for investments with the same projected return but differing levels of risk, he chooses the lower-risk choice..
Variance is calculated by determining the weighted probability average obtained by squaring deviations derived from the expected value. Standard devia-
tion is used in finance to measure the volatility of the investment by determining the total annual rate of investment. 3
Risk premium for Stock i, RPi; market risk premium, RPM
The market risk premium is the extra amount of return that investors are supposed to get from investing in the stock market instead of risk-free products. Investing in stocks comes with a price tag that's higher than a risk-free rate of return because of the inherent risk that comes along with it (Yampuler, 2019). Capital Asset
Pricing Model (CAPM) This is a stock market model that describes the relationship existing between expected return and systematic risk. Expected return on a
portfolio, r^p; market portfolio
To calculate the expected return on a portfolio, you add together the expected returns from each of the securities and assets included in the portfolio, and then multi- ply that total by the percentage of the portfolio they represent (Calvet et al., 2022).
Realized rate of return, r is the percentage of return realized on investment annually and is adjustable due to changes in prices as result of inflation. Market risk
premium is dependent on the level of risk aversion that investors possess on average. CAPM is used to determine the price of securities that are risky and also
generation of expected returns for stocks and assets as well as computing the capital costs. Market portfolio is a portfolio that contains all assets that are available to investors where assets are held in proportion to their value in the market that is related to the total value of all assets in the market.
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Correlation as a concept; correlation coefficient, ρ
The term "correlation" refers to a statistical measure that depicts the relationship between two or more securities. The correlation coefficient is a number that ranges from -1 to 1, indicating whether there is a negative or positive correlation between two or more stocks (Robertson, 2020). Market risk; diversifiable risk; relevant risk
The possibility that an investor would suffer losses as a result of factors affecting the performance of the financial markets in which he or she has invested is
known as market risk. The fluctuation in returns that results from the macroeconomic factors affecting the hazardous assets is referred to as "relative risk.“
Diversifiable risk is a risk that applies to a specific security or sector of investment and has limited effects to diversified portfolios eg the risk of a company losing
market share
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Beta coefficient, b; average stock’s beta
Beta is a number that tells you how much risk there is in a security or a group of securities when compared to the whole market.
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Average stock's beta shows how volatile the security is compared to the market (Robertson, 2020). Beta coefficient, b; average stock’s beta
Beta is a number that tells you how much risk there is in a security or a group of securities when compared to the whole market. Average stock's beta shows
how volatile the security is compared to the market.
Beta indicates whether volatility of return of a security will be higher or lower as compared to the market return volatility. 6
Security Market Line (SML); SML equation
When the SML equation is used, it tells how much risk a security has in the market and how much the security needs to earn to make money. Security Market
Line (SML) is a graph that shows the risk of the whole market against its return over a certain amount of time. It also shows which securities in the market are risky (Yampuler, 2019). Slope of SML and its relationship to risk aversion
The slope of SML is the same as the market risk. Equilibrium; Efficient Markets Hypothesis (EMH); three forms of EMH
When the expected return on a security is equal to the necessary return, we say that we are in equilibrium (Calvet et al., 2022). According to the Efficient Market Hypothesis (EMH), stocks are always in a condition of equilibrium and outsider investors have a tough time taking control of the market. Forms of EMH
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Weak form
Semi-strong form
Strong form.
The security market line is less volatile when the average better is less than 1 and more volatile when the average is more than 1. Security Market Line (SML) is a
graph that shows the systematic risks against the whole market return in a given period of time as well as indicating all securities that are risky in the market. The slope shows how the investors are risk averse on average. SML slope that is steep indicates that the investor is less risk averse and demands a higher return. 7
Fama-French three-factor model
If you want to figure out how much you should charge for something, you can use the Fama-French three-factor model to do it, which adds size and value factors to the CAPM (Robertson, 2020). Behavioral finance; herding; anchoring
Behavioral finance is a branch of finance that explains why people make decisions about money that aren't logical. People in the market react to information about how other market agents are behaving. This is called herding (Yampuler, 2019). An example of anchoring is when people think about a target value and keep thinking about it. This is a cognitive error that behavioral finance says is caused by the way people think..
The weak form indicate that information about the past price movement is reflected in the current market prices. Semi-strong form indicate that current
market prices reflects all information available in the public. The Strong form: implies that current market prices are as a reflection of all publicly and privately
held information
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REFERENCES
Calvet, L., Gianfrate, G., & Uppal, R. (2022). The finance of climate change. Journal of Corporate Finance, 102162. https://doi.org/10.1016/j.jcorpfin.2022.102162
Robertson, I. (2020). Principles of sustainable finance. Journal of Sustainable Finance & Investment, 10(3), 311-313.
https://doi.org/10.1080/20430795.2020.1717241
Yampuler, M. (2019). Principles-Based Accounting Standards, Earnings Management and Price Efficiency. Accounting and Finance Research, 8(2), 171.
https://doi.org/10.5430/afr.v8n2p171
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Principles Of Finance
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Principles of Finance
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Risk in general; stand-alone risk; probability distribution and its relation to risk
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Risk in general stand-alone risk probability distribution and its relation to risk
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Expected rate of return, ^r
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Expected rate of return, ^r
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Expected return is the expected profit or loss that will come from an investment.
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Expected return is the anticipated profit or loss that result from an investment
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Efalken.(n.d) http://www.efalken.com/papers/RRsec1.html In finance risk is the possibility that the return of investment will be at a lower figure than the expected return.
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http://www.efalken.com/papers/RRsec1.html In finance risk possibility that the return of in- vestment will be at a lower figure than the expected return (LumenLearning, n.d.)
3/1/22, 10:23 PM Originality Report
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Probability distribution can be used to predict the future outcomes of an event based on the historical figures and records of an organization hence assisting in predicting the future risks that are likely to occur for a particular entity.
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Probability distribution can be used to predict the future outcomes of an event based on the historical figures and records of an organization hence assisting in predicting the future risks that are likely to occur for a particular entity (Boundless Finance
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Expected rate of return provide investors with the knowledge of whether is investment likely to be successful or not.
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Expected rate of return provide investors with the knowledge of whether is investment likely to be successful or not (LumenLearning, n.d.)
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Continuous probability distribution When a random variable takes all possible values and real numbers within a specified range, this is referred to as a continuous probability distribution.
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Continuous probability distribution Continuous probability distribution is a distribution where the random variable takes all values and real numbers at a given range
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In this distribution, the random variable is believed to be continuous in nature, as opposed to discrete (Yampuler, 2019).
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The random variable in this distribution is considered to be continuous in nature
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Standard deviation, σ;
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Standard deviation, σ
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The standard deviation of a data set is a measure of how far it is from the average or mean of the data set (Robertson, 2020).
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Standard deviation is a measure of the distribution of a data set from it average or mean
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realized rate of return, r
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realized rate of return, r
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Variance is calculated by determining the weighted probability average obtained by squar- ing deviations derived from the expected value.
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Variance is calculated by determining the weighted probability average obtained by squar- ing deviations derived from the expected value (LumenLearning, n.d.)
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Standard deviation is used in finance to measure the volatility of the investment by deter- mining the total annual rate of investment.
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Standard deviation is used in finance to measure the volatility of the investment by deter- mining the total annual rate of investment (Brigham, E
3/1/22, 10:23 PM Originality Report
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Risk premium for Stock i, RPi; market risk premium, RPM The market risk premium is the ex- tra amount of return that investors are supposed to get from investing in the stock market instead of risk-free products.
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Risk premium for Stock i, RPi market risk premium, RPM The market risk premium is the ex- tra amount of return of investments that investors are supposed to invest in stock market instead of buying securities that are risk-free
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Student paper
Capital Asset Pricing Model (CAPM) This is a stock market model that describes the relation- ship existing between expected return and systematic risk.
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Capital Asset Pricing Model A model that describes the relationship between expected re- turn and risk of a security
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Expected return on a portfolio, r^p;
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Expected return on a portfolio, r^p
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Realized rate of return, r is the percentage of return realized on investment annually and is adjustable due to changes in prices as result of inflation. Market risk premium is dependent on the level of risk aversion that investors possess on average.
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Realized rate of return, r is the percentage of return realized on investment annually and is adjustable due to changes in prices as result of inflation It is dependent on the level of risk aversion that investors possess on average
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Student paper
CAPM is used to determine the price of securities that are risky and also generation of ex- pected returns for stocks and assets as well as computing the capital costs. Market portfolio is a portfolio that contains all assets that are available to investors where assets are held in proportion to their value in the market that is related to the total value of all assets in the market.
Original source
It is used to determine the price of securities that are risky and also generation of expected returns for stocks and assets as well as computing the capital costs Brigham, E Market port- folio is a portfolio that contains all assets that are available to investors where assets are held in proportion to their value in the market that is related to the total value of all assets in the market.(Market Portfolio
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Correlation as a concept; correlation coefficient, ρ
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Correlation as a concept correlation coefficient, ρ
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The possibility that an investor would suffer losses as a result of factors affecting the perfor- mance of the financial markets in which he or she has invested is known as market risk. The fluctuation in returns that results from the macroeconomic factors affecting the hazardous assets is referred to as "relative risk.“
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Market risk is the likelihood that an investor will experience losses caused by factors that affect the performance of the financial markets he or she has invested in Relative risk is the variation of returns that result from the macroeconomic factors affecting the risky assets
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Diversifiable risk is a risk that applies to a specific security or sector of investment and has limited effects to diversified portfolios eg the risk of a company losing market share
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Diversifiable risk is a risk that applies to a specific security or sector of investment and has limited effects to diversified portfolios eg the risk of a company losing market share (Diversifiable risk
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Beta coefficient, b; average stock’s beta
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Beta coefficient, b average stock’s beta
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Beta coefficient, b; average stock’s beta
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Beta coefficient, b average stock’s beta
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Average stock's beta shows how volatile the security is compared to the market. Beta indi- cates whether volatility of return of a security will be higher or lower as compared to the market return volatility.
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Average stock’s beta indicates the volatility of security compared to the market Beta indi- cates whether volatility of return of a security will be higher or lower as compared to the market return volatility
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Security Market Line (SML);
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Security Market Line (SML)
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Security Market Line (SML) is a graph that shows the risk of the whole market against its re- turn over a certain amount of time.
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Security Market Line (SML) is a line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities
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Slope of SML and its relationship to risk aversion The slope of SML is the same as the mar- ket risk.
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Slope of SML and its relationship to risk aversion The slope of SML is equivalent to the mar- ket risk
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Efficient Markets Hypothesis (EMH); three forms of EMH
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Efficient Markets Hypothesis (EMH) three forms of EMH
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Forms of EMH
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Forms of EMH
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Semi-strong form
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Semi-strong form
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The security market line is less volatile when the average better is less than 1 and more volatile when the average is more than 1. Security Market Line (SML) is a graph that shows the systematic risks against the whole market return in a given period of time as well as indi- cating all securities that are risky in the market. The slope shows how the investors are risk averse on average. SML slope that is steep indicates that the investor is less risk averse and demands a higher return.
Original source
The security is less volatile when the average better is less than 1 and more volatile when the average is more than 1 Security Market Line (SML) is a graph that shows the systematic risks against the whole market return in a given period of time as well as indicating all secu- rities that are risky in the market The slope shows how the investors are risk averse on aver- age SML slope that is steep indicates that the investor is less risk averse and demands a higher return
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Student paper
Fama-French three-factor model
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Fama-French three-factor model
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The weak form indicate that information about the past price movement is reflected in the current market prices.
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indicate that information about the past price movement is reflected in the current market prices
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Semi-strong form indicate that current market prices reflects all information available in the public.
Original source
indicate that current market prices reflects all information available in the public
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The Strong form: implies that current market prices are as a reflection of all publicly and pri- vately held information
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Semi-strong form implies that current market prices are as a reflection of all publicly and privately held information
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Journal of Corporate Finance, 102162.
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Journal of Finance
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Principles of sustainable finance.
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Principles of Finance
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https://doi.org/10.5430/afr.v8n2p171
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https://doi.org/10.5430/afr.v8n1p66 Refbacks There are currently no refbacks
