Unlike Mean Variance Portfolio theory the CAPM model rewards for the excess beta or additional risk borne by the investor. Higher the beta higher is the compensation required by the security. As per this model a higher ‘standard deviation’ does not mean a higher return as ‘beta’ is the measure of risk under CAPM and not ‘standard deviation’. In the CAPM world an investor is rewarded for bearing the risk that cannot be diversified. This is referred as ‘systematic risk’ captured by the beta of the stock. An investor is not awarded for bearing any nondiversifiable risk i.e. unsystematic risk captured by the standard deviation of the stock. In other words the investors are rewarded for bearing the risk that cannot be diversified away. This is also referred as ‘market risk’ (Sigman, 2005).
The beta is the sensitivity of stock return to the market return. Higher the beta higher is the risk associated with the stock. Gitman (2006) states that beta is “a measure of non-diversifiable risk” i.e. it measures the return on asset with reference to the market return. Ideally the beta of a stock should be “forward-looking” and measured with respect to the whole market, whereas in practice this is based on historical returns and the stock index acts as a proxy for ‘market return’ (Kürschner, 2008, p. 3).
Suppose the beta of Stock A is 2. In the event of a 10% rise or fall in the market the price of Stock A will rise or fall by 20% respectively. Stocks with a beta of more than one are referred as ‘aggressive stock’ and stocks with a beta of less than one are referred as ‘defensive stock’. One can invest in aggressive stocks in times of market upswings and such stocks must be avoided in times of uncertain market conditions. In short the beta co-efficient of a stock measures the volatility in the return of a stock with respect to the market benchmark.
The assumptions ...
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But there has always been a very strong theoretical base for its implementation of diversion programmes and also a social and political demand for it (Klein, 1979, p.147). (b) An optimal sanctioning strategy for diversion programme must not be totally averse to the use of “usual practices” and “various components of the justice system” (Klein, 1979, p.152).
This is stated as- Re = Rf + (Rm-Rf)*? Re is the required return on the security Rf is the risk-free rate of return ‘?” is the market beta Rm is the market return As per CAPM the investors are rewarded in 2 ways: risk and time value of money. The risk free return compensates for the time value aspect of the investment.
Seminal research works of Milton Friedman (1970) has forced the researcher in this essay to look deep on role of ethics and ethical decision making in financial institution or more specifically for banking industry. In the first part of this essay, the researcher will try to define the concept of free competition and business ethics in the light of research works of previous research scholars.
However, the banks have failed to understand that the head-on strategy has different implications as compared to the strategy that looks at exploiting the Islamic niche bank. While competing with the conventional banks, the Islamic banks are at a disadvantageous position, as they are smaller in size.
With more than 300 years of expertise and history in banking, the organization operates in more than 50 countries and employs 140000 people (Barclays, 2012). The universal banking model of Barclay provides it with continuous competitive strength. Revenue earned by the bank remained resilient reflecting the strength of the customers of the bank and mixture of balance in their business.
The bank of America has its financial and banking services spread all over the world in 40 countries. Bank of America completed the acquisition of Merrill Lynch in 2008 to become one of the largest players providing wealth management services across the world.
There are various segments in which the company operates, which include, asset management, investment banking, private banking, commercial banking, investor services and treasury services (Yahoo Finance, 2013; J P Morgan Chase & Co.,
It also deals with whether the Euro could substitute the US dollar as the major currency in the global market.
The report seeks to deal with the factors such as whether it is advantageous for the UK to enter into a currency union with the Euro
My sincere gratitude also goes to my supervisor for his professional guidance and advice he offered me during this time. He was a great source of motivation to me and an encouragement in the completion of this work and his timely feedback were critical to my work.