Assignment
o Understand how capital gains and percentage returns are calculated.
o Explain the difference between average stock returns and risk-free returns.
o Explain how the Sharpe Ratio is used to manage risk.
o Describe the significance of US equity risk premiums as a method of comparison with other countries.
o Describe how variance and standard deviation are used to measure the variability of individual stocks.
o Explain how an investor chooses the best portfolio of stock to hold.
o Discuss how diversification is used to mitigate risk in the portfolio.
o Describe the relationship between risk and expected return (CAPM).
o Explain how the risk-free rate, market risk premium and stock beta are used to calculate expected returns using the capital asset pricing model (CAPM).
o Explain how cyclicality of revenues and operating leverage help determine beta.
o Describe the dividend discount model (DDM) approach and how is it different than CAPM.
o Understand how to calculate the weighted average cost of capital to determine the optimum level of debt and equity to finance an investment.
o What derivatives are and how are they used to manage risk.
o Distinguish between forward contracts and future contracts.
o Compare and contrast the various types of swap contracts.
Format your assignment according to the following formatting requirements:
o The answer should be typed, using Times New Roman font (size 12), double spaced, with one-inch margins on all sides.
o The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
o Also include a reference page. The Citations and references must follow APA format. The reference page is not included in the required page length.