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Investing in Microsoft Stocks - Essay Example

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Investing in Microsoft Stocks

Taking for example if Microsoft has to outsource to finance the whole company, it has to repay fixed financing charges such as interest expenses and return of principal amount before paying its shareholders. This then increases the risk of shareholders' investment due to the preference of distributing its assets.
Liquidity risk is the uncertainty over the ability to sell an investment in the secondary market which is Microsoft's ability to sell its asset or convert non cash assets to cash in order to finance the company.
Another risk connected in investment decisions is the Exchange rate risk or the uncertainty over the domestic currency value of a foreign currency denominated investment, which means that the value of the money varies with the currency of another country. The risk might be the value of the investment might go down or become lesser especially when it comes to currency conversion.
Country risk is also taken into consideration with regards to investment. This is the uncertainty over the political or economic environment in which the investment is located. A major factor for investment decisions is the political and economic stability of a particular country where the investment is located, this is because, the more stable the political and economic environment is, the more investors are attracted and therefore, the more profit the company may generate.

Another risk to be considered is the credit risk or the uncertainty over whether the issuer of a fixed income security will deliver the contractual cash flows which means, the ability of Microsoft to attract creditors for additional financing or its ability to collect money form its deliveries and services to its customers who purchased on account. Sometimes, credit risk is also carried when creditors were subjected to bankruptcy and that ir was'nt able to pay its obligations to the company.




Below is the computation of expected return of Microsoft stock.

Date
Monthly Percentage Returns


PORTFOLIO MODEL

MSCI WORLD U$
S&P 500 COMPOSITE
MICROSOFT



30/09/2001






31/10/2001
1.85
1.81
13.64



30/11/2001
5.8
7.52
10.42



31/12/2001
0.56
0.76
3.18



31/01/2002
-3.1
-1.56
-3.83



28/02/2002
-1
-2.08
-8.43



29/03/2002
4.24
3.67
3.38



30/04/2002
-3.52
-6.14
-13.35



31/05/2002
-0.04
-0.91
-2.58



28/06/2002
-6.2
-7.25
7.44



31/07/2002
-8.51
-7.9
-12.29



30/08/2002
0
0.49
2.29



30/09/2002
-11.13
-11
-10.88



31/10/2002
7.28
8.64
22.25



29/11/2002
5.25
5.71
7.87



31/12/2002
-4.95
-6.03
-10.37



31/01/2003
-3.12
-2.74
-8.2



28/02/2003
-1.9
-1.7
-0.13



31/03/2003
-0.56
0.84
2.15



30/04/2003
8.64
8.1
5.58



30/05/2003
5.45
5.09
-3.72



30/06/2003
1.56
1.13
4.19



31/07/2003
1.92
1.62
3



29/08/2003
1.98
1.79
0.42



30/09/2003
0.48
-1.19
4.83



31/10/2003
5.83
5.5
-5.97



28/11/2003
1.38
0.71
-1.64



31/12/2003
6.18
5.08
6.46



30/01/2004
1.54
1.73
1.02



27/02/2004
1.55
1.22
-4.05



31/03/2004
-0.89
-1.64
-6.03



30/04/2004
-2.22
-1.68
4.81



31/05/2004
0.67
1.21
0.38



30/06/2004
1.91
1.8
8.88



30/07/2004
-3.34
-3.43
-0.25



31/08/2004
0.26
0.23
-4.18



30/09/2004
1.77
0.94
1.28



29/10/2004
2.37
1.4
1.16



30/11/2004
5.09
3.86
-4.15



31/12/2004 ...Show more
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Summary

There are several sources of fundamental risk as being presented in the lecture note. They are identified as Business risk; financial risk; Liquidity risk; Exchange rate risk; Country risk and credit risk.
As discussed in our class, Business risk is the uncertainty over cash flows caused by the nature of a firm's business, example of which is the fluctuating demand for the firm's output…
Investing in Microsoft Stocks
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