Module 7

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Across
  1. 5. The average annual return of the market expected by investors over and above riskless debt.
  2. 8. A strategy in which the primary distinction in the estimation of the cost of equity for an individual firm using an internationalized version of the domestic capital asset pricing model is the definition of the “market” and a recalculation of the firm’s beta for that market.
  3. 10. a financial market imperfection caused mainly by government constraints, institutional practices, and investor perceptions. The most significant imperfections include asymmetric information between domestic and foreign investors, lack of transparency, high transaction costs, foreign exchange risks, political risks, corporate governance differences, and a variety of regulatory barriers.
Down
  1. 1. The degree to which a firm can issue a new security without depressing the existing market price, as well as the degree to which a change in price of its securities elicits a substantial order flow.
  2. 2. A network of bilateral treaties that provide a means of reducing double taxation.
  3. 3. The sum of the proportionally weighted costs of different sources of capital, used as the minimum acceptable target return on new investments.
  4. 4. A theoretical model that relates the return on an asset to its risk, where risk is the contribution of the asset to the volatility of a portfolio. Risk and return are presumed to be determined in competitive and efficient financial markets.
  5. 6. In portfolio theory, the risk of the market itself, i.e., risk that cannot be diversified away.
  6. 7. The required rate of return by a firm on a potential new investment in order to approve accepting the investment. The rate is typically based on the company’s current cost of capital, including debt and equity. In some cases the firm will require some premium or additional margin on certain investments above and beyond its cost of capital in the calculation of the hurdle rate
  7. 9. Second letter of the Greek alphabet, used as a statistical measure of risk in the Capital Asset Pricing Model. Beta is the covariance between returns on a given asset and returns on the market portfolio, divided by the variance of returns on the market portfolio.