# financial risk

## MHC6305 Week 4 Discussion Instructions

Before beginning work on this discussion forum, please review the link “ Doing Discussion Questions Right ,” . The expanded grading rubric for the forum, and any specific instructions for this topic.

Before the end of the unit, begin commenting on at least two of your classmates’ responses. You can ask technical questions or respond generally to the overall experience. Be objective, clear, and concise. Always use constructive language, even in criticism. To work toward the goal of positive progress. Submit your responses in the Discussion Area.

## capital asset pricing model

The  capital asset pricing model , or CAPM, is used to price an individual security or portfolio. The general idea behind CAPM is that investors should be compensated in two ways, for the time value of their money and risk incurred. The model helps investors calculate risks and what type of return they should expect on their investment. The time money value is represented by the risk-free rate, usually a 10-year government bond yield, and compensates the investors for placing money in an investment over a period of time.

That is added to the other half of the formula which represents risk. It calculates the amount of compensation the investor needs for taking on additional risk. This is done by taking a Beta, which measures a stock’s volatility, and multiplies by its premium. The premium is calculated by subtracting the risk-free rate of return from the expected return of the market. For example, the expected return of a stock can be figured out in the following way using a model. If the risk-free rate is 3% the Beta or risk measure of the stock is 3 and the expected market return over the period is 11%. The stock is expected to return 27%. In short, if the expected return does not make the risk worth it, the investment should not be made.

## Respond to the following questions:

· You are the chief financial officer (CFO) of a multi-physician clinic. Do you see weaknesses or strengths in the capital asset pricing model (CAPM)? Explain your response and support it with examples. Include a consideration of the small market line (SML).

· Your chief executive officer (CEO) asks you to decide between debt and equity financing. Explain which the best option is. Discuss the factors that influence your decision.

To support your work, use your course and textbook readings and also use the  South University Online Library . As in all assignments, cite your sources in your work and provide references for the citations in APA format.

Your initial posting should be addressed at 300-500 words. Submit your document to this Discussion Area by the due date assigned. Be sure to cite your sources using APA format.

Respond to your peers throughout the Week. Justify your answers with examples, research, and reasoning. Follow up posts need to be submitted by the end of week.

## Instructions

Before beginning work on this assignment. Please review the expanded grading rubric for specific instructions relating to content and formatting.

Money has different values based on time. Money in your pocket has a current value. But money owed to you has a varying value based on how sure it is that you will receive it and when. It is possible to estimate its value. In this assignment, you will analyze the value of money on the basis of this Week’s learning.

Review  Understanding The Time Value of Money  to attain more information on how the value of money is based on timehttps://www.investopedia.com/articles/03/082703.asp

## Find the following values for a lump sum assuming annual compounding:

· The future value of \$500 invested at 8 percent for 1 year. The future value of \$500 invested at 8 percent for 5 years.  The present value of \$500 to be received in 1 year when the opportunity cost rate is 8 percent

· The present value of \$500 to be received in 5 years when the opportunity cost rate is 8 percent. Analyze present and future values and their implications for the balance sheet and the budget of an organization.

## Submission Details:

·  To support your work, use your course and textbook readings. And also use the South University Online Library. As in all assignments, cite your sources in your  work and  provide references for the citations in APA format.

·  Your assignment should be addressed in a 2- to 3-page document.

·  Submit your document to this appropriate Submissions Area by the due date assigned.