3 Risk is the likelihood that your investment will either earn money or lose money. There are some factors that affect the risk. Explain the factors that affect the risk and solve the below given problem Mr. A has purchased 100 shares of Rs.10 each of TVS Motors in 2005 at Rs.78 Per share. The company has declared a dividend @40% for the year 2006-07. The market price of a share as on 1-4-2006 was Rs.104 and on 31-3-2007 was Rs.128. Calculate the annual return on the investment for the year 2006-07
Answer:- Explanation of factors affecting the risk
The common risk factors are:
Business risk: As a security holder you get dividends, interest or principal (on maturity in case of securities like bonds) from the firm. But there is a possibility that the firm may not be able to pay you due to poor financial performance. This possibility is termed as business risk. The poor financial performance could be due to economic slowdown, poor demand for the firm’s goods and services and large operating expenses. Such a performance affects the equity and the debt holder. The equity holder may not get dividends and residual claim on the income and wealth of the firm. Similarly a debt holder may not get interest and principal payments.
Calculation of annual return on investment
Solution:
Dividend received for 2006-07 = 10 x .40 = Rs 4 (annual income)
Beginning Price (P0) = Rs 104
Ending Price (P1) = Rs 128
Calculation of annual ROR for the year 2006-07
Students, Get Completely solved SMU MBA Spring 2014 assignments from authorized organization www.smumbaassignments.com
Send your semester & Specialization name to our mail id : “ kvsude@gmail.com”or Call us at : +91 9995105420
These are just questions for reference. To check samples see our latest uploads in blog archive or search assignments
