Capital Asset Pricing Model - Unsystematic Risk - Finance Assignment Help

Assignment Task :

QUESTION ONE 

Part A 

The Low Rate Credit Card is a no annual fee card with an interest rate of 7.99% per annum calculated daily on purchases and cash advances, but with up to 92 days interest free on purchases if you pay the full balance off each month. 

REQUIRED: Calculate how much interest charge you are avoiding if you buy $3,000 of purchases at the start of the cycle and pay the full amount when due 92 days later (show all workings). 

Part B 

Didasko Recreation & Fitness Centre currently offers gym membership to students for $500 per year or $400 per half-year, both paid on day 1 of membership. 

If you want continuous membership for a year and if prices remain the same, what is the effective annual interest rate of choosing to pay the half yearly payments instead of the annual payment (show all workings)? 

QUESTION TWO 

a. What is unsystematic risk? Provide one example of an event that is a source of unsystematic risk.

b. What is systematic risk? Provide one example of an event that is a source of systematic risk.

c. Can unsystematic risk be diversified and/or managed? Explain. 

QUESTION THREE 

Part A 

The yield on 5-year Australian Government bonds as at 3 April 2019 is 3.46%. Rio Tinto Ltd’s share price at 3 April 2019 is $100.32 per share while it has a beta coefficient of 1.77. Trailing twelve months (TTM) return on the ASX S&P 200 is 15.74%. 

REQUIRED: Estimate the cost of equity using the Capital Asset Pricing Model (show all workings). What does the cost of equity tell you? 

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