Question

In: Finance

Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%.


Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%.

  1. Draw the Security Market Line (SML).                      


  1. Discuss four (4) risks regarding alternative investments such as cryptocurrencies.                                                                 


  1. Empirically analyse the insurance sector of Zambia, and where
    possible, draw policy recommendations that could stimulate insurancepenetration.

Solutions

Expert Solution

Parta

Part b

Risks in alternative investments are

Credit risk : alternative investments like cryptocurrency is not backed by any regulator or government in some countries which means that buyer can't be made legaly liable to pay the price of the asset he purchased.

Liquidity risk: alternative investments like properties are very illiquid your funds get blocked for a longer period of time.

Value Assement : unlike stocks and bond markets researches happen less often in these investments so it becomes quite difficult to assess the correct value for example painting's value assessment is quite a lot difficult.

Minimum fund requirements: some alternative investments are not traded in smaller multiples so they require higher amount of funds to be invested.

Non transparency of transaction costs in alternative investments markets.

Part c

Before globalisation there was s monopoly of state insurance corporation but after globalisation new players started coming into the market now there are more then 27 insurers operating in Zambia the industry has witnessed a significant growth in past couple of decades but the corresponding growth has not been seen the insurance density and specially insurance penetration which is also knows as per capita premium insurance penetration is still very low in Zambia which shows that a wide population is not covered by insurance services.The possible reasons may be

Lack of awareness in people about insurance services

Insurance services are accessible in remote areas

People don't have much faith in insurance companies with thier money.


Related Solutions

Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%....
Suppose the market premium is 9%, market volatility is 30% and the risk-free rate is 3%. Draw the Security Market Line (SML).                        Stock X and Y have the following parameters. X Y Beta (β) 0.6 1.2 Beginning Value K20 K10 Dividend Value K2 K1 End Value K21 K10             Calculate the returns according to the Capital Asset Pricing Model (CAPM) utilising the market return you plotted in part A.                                                       Calculate the returns according to the values...
Assume that the risk-free rate is 6% and the market risk premium is 3%.
EXPECTED AND REQUIRED RATES OF RETURN Assume that the risk-free rate is 6% and the market risk premium is 3%. What is the required return for the overall stock market? Round your answer to two decimal places. % What is the required rate of return on a stock with a beta of 0.8? Round your answer to two decimal places.
The risk-free rate is 2% and the market risk premium is 3%. If stock A has...
The risk-free rate is 2% and the market risk premium is 3%. If stock A has a beta of -1.5, what is the stock's required rate of return?
Assume that the risk-free rate is 3.5% and the market risk premium is 3%. What is...
Assume that the risk-free rate is 3.5% and the market risk premium is 3%. What is the required return for the overall stock market? Round your answer to two decimal places. % What is the required rate of return on a stock with a beta of 1.9? Round your answer to two decimal places. %
PRINCIPLE OF CORPORATE FINANCE 9.      The risk-free rate is 5%, the market risk premium is 8%,...
PRINCIPLE OF CORPORATE FINANCE 9.      The risk-free rate is 5%, the market risk premium is 8%, and the market return is 13%. Stock Y's beta is 1.85 and the standard deviation of its returns is 62.5%. What should be the stock's expected rate of return to make the investor indifferent toward buying or selling the stock? a)      11.66% b)      12.50% c)      15.54% d)      19.80% 10. The expected rate of return of an investment _____. a)      is the median value of...
1. Suppose the risk-free rate is 2.64% and an analyst assumes a market risk premium of...
1. Suppose the risk-free rate is 2.64% and an analyst assumes a market risk premium of 6.89%. Firm A just paid a dividend of $1.25 per share. The analyst estimates the β of Firm A to be 1.41 and estimates the dividend growth rate to be 4.64% forever. Firm A has 276.00 million shares outstanding. Firm B just paid a dividend of $1.53 per share. The analyst estimates the β of Firm B to be 0.85 and believes that dividends...
Suppose the risk-free rate is 1.24% and an analyst assumes a market risk premium of 6.69%....
Suppose the risk-free rate is 1.24% and an analyst assumes a market risk premium of 6.69%. Firm A just paid a dividend of $1.31 per share. The analyst estimates the β of Firm A to be 1.40 and estimates the dividend growth rate to be 4.85% forever. Firm A has 261.00 million shares outstanding. Firm B just paid a dividend of $1.67 per share. The analyst estimates the β of Firm B to be 0.80 and believes that dividends will...
Suppose the risk-free rate is 1.46% and an analyst assumes a market risk premium of 6.80%....
Suppose the risk-free rate is 1.46% and an analyst assumes a market risk premium of 6.80%. Firm A just paid a dividend of $1.23 per share. The analyst estimates the β of Firm A to be 1.26 and estimates the dividend growth rate to be 4.95% forever. Firm A has 260.00 million shares outstanding. Firm B just paid a dividend of $1.99 per share. The analyst estimates the β of Firm B to be 0.83 and believes that dividends will...
1. A) Suppose the risk-free rate is 3.00% and an analyst assumes a market risk premium...
1. A) Suppose the risk-free rate is 3.00% and an analyst assumes a market risk premium of 7.64%. Firm A just paid a dividend of $1.03 per share. The analyst estimates the β of Firm A to be 1.33 and estimates the dividend growth rate to be 4.74% forever. Firm A has 262.00 million shares outstanding. Firm B just paid a dividend of $1.61 per share. The analyst estimates the β of Firm B to be 0.87 and believes that...
Suppose the risk-free rate is 1.88% and an analyst assumes a market risk premium of 7.11%....
Suppose the risk-free rate is 1.88% and an analyst assumes a market risk premium of 7.11%. Firm A just paid a dividend of $1.45 per share. The analyst estimates the β of Firm A to be 1.21 and estimates the dividend growth rate to be 4.11% forever. Firm A has 277.00 million shares outstanding. Firm B just paid a dividend of $1.62 per share. The analyst estimates the β of Firm B to be 0.87 and believes that dividends will...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT