FIN 370T Phoenix Financial Decisions Regarding Risk and Return Discussion

3 substantive responses. This includes your initial post and 2 replies to classmates or your faculty member.

Investors need to know how much risk they have to take to confidently expect a certain percentage return. Likewise, managers want to know what return shareholders require so that they can decide how to meet those expectations.

Respond to the following in a minimum of 175 words:

• Select 2–3 of the topics below and discuss how they each influence financial decisions regarding risk and return:
• The capital asset pricing model (CAPM)
• The constant–growth model
• Compute forward-looking expected return and risk
• Risk premiums

Post 2 replies to classmates or your faculty member in a minimum of 100 words. Be constructive and professional.

Classmate 1 (nm)

The constant growth model basically assumes constant growth in dividends and puts a value on a company’s stock. It is a variant of the dividend discount model, the constant growth model assumes that a company exists “forever” and that it will pay dividends per share increasing at a constant rate. It has a limitation which is that it is the best option for companies with pretty constant growth rates. Anyways this model takes the infinite series of dividends (per share) and then discounts them in the present, of course using the right rate of return.

This model pays it, equity shareholders, constant growth in equity payments.

Classmate (CM)

The risk premium is the rate of return on investment over the risk-free or guaranteed rate of return. It reflects required historical and expected returns. Information The risk-free is a theoretical interest rate that would be paid by an investment with zero risk. This is an important concept because it can provide some guidance to investors when evaluating a stock. It helps by helping to understand the future return of a stock based on it’s history and performance. The constant growth model is a way to evaluate a stock or investment. The constant growth model assumes that the company’s dividends will continue to rise constantly. Anytime a decision needs to be made on investing, there needs to be some research on the different possible outcomes. These two concepts can help make the best decision possible. Part of investing and buying stocks is making sure that the investment is a responsible. Doing the research and seeing where your money will grow it the main reason to invest in my opinion. There are many other ways that can help determine what company is the best to invest in.