FINA 3000 Study Guide - Midterm Guide: Market Portfolio, Risk Premium, Theranos
Document Summary
In our current event, under armour debt has been downgraded to junk status. One of the reasons for the financial crisis was the mistaken belief that the prices of homes will always continue to rise over time. In reality, we can say that stocks tend to be positively correlated. The part of a stock"s volatility that is caused by macroeconomic events is considered diversifiable risk. In building a portfolio, we would not seek negatively correlated investments as that would reduce our average return. Verizon is considered a large dividend paying company. With the current environment of increasing interest rates, this will cause an increase in its stock price. This means that the two stocks must have the same correlation with the market portfolio. For mutually exclusive projects, we would favor the npv rule over the irr rule. The capital gain for a stock can be positive or negative.
