Question

1. Questions about risk

1. Define unsystematic risk

2. Name and explain the two sources of unsystematic risk

3. Define systematic risk

4. Name and explain two sources of systematic risk   

2. Beta coefficient

1. Explain the concept of the beta coefficient   

2. Suppose that the stock for Alphabet Inc, an american Technology conglomerate, had a beta coefficient of 1.3. If the return on as a whole will be 10% over the next year, what will be the return on investment over the next year? (assuming the beta coefficient for Google stock does not change).

1. What is a balance sheet?

2. What is an Income statement?

3. What is the statement of cash flows?

1. List and explain the two types of stock.

2. What is a cash dividend?

3. Suppose Netflix Inc. declares a $2 per share cash dividend with a distribution date of May 15th, 2019. The Netflix board of Directors declares that the date of record is Thursday, April 18th, 2019. When must the ex. Dividend date

4. If the closing price of Netflix stock is $350 per share on the day before the ex dividend date, what will the price per share of Netflix stock be at the maximum open on the ex dividend date (assuming no other important dates occur that would impact Netflix’s business and that the cash dividend is $2 per share)?

5. You have done an extensive analysis of the stock of the Boeing Company, an American multinational corporation that designs, manufactures, and sells airplanes, rotocrafts, rockets, satellites, and missiles worldwide. In the course of your analysis you determined that Boeing stock is currently trading at a price to earnings (i.e. P/E) ratio of about 16, with a minimum P/E ratio of 12 and a maximum P/E ratio of 21. Currently the average P/E ratio for stocks in the aircraft manufacturing industry is 15, while the average P/E ratio for all of the stocks in the S&P 500 is 17. What do you conclude from this data?

6. Bonds

• Define principle bonds

• Define Maturity date

• Company holding your bond defaults

Answer 1

1) Unsystematic risk is the risk which is specific to the company or industry. This type of risk can be negated through diversification of assets.

2) Unsystematic risk is specific to the industry or sector. Agricultural companies do have a substantial risk if the weather turns bad because of flood or drought. Airlines companies worldwide have a big risk of fluctuating fuel prices. Although they can pass onto the consumers but still elasticity of demand can create pressure.

3) Systematic risk is the risk which affects the entire market or the economy and this type of risk is unavoidable as it could not be eliminated through diversification.

4) Systematic risk has its effects on the whole economy and it includes a higher level of inflation or a recession in the economy.
Impact on the economy because of a sudden war situation is also known as a type of systematic risk.

5) Beta is the measure of the volatility against the broad market. It compares the volatility or risk of a specific financial asset or portfolio of the asset against the broader market. For example, if any stock has a beta of 0.5 then it means it has a 50% volatility of the market and it could generate 50% return in comparison to the market. Similarly, the beta of 1.5 means it could have 150% volatility.

6) The beat for the Alphabet stock is given as 1.3 and market return mentioned was 10%.

1.3 * 10% = 13%

Investment in the Alphabet stock is expected to generate 13% return.