Wk4 Discussions Assignment Example | Topics and Well Written Essays - 500 words

Wk4 Discussions - Assignment Example Some of them might not be conscious of the dynamics involved in the investment of securities. Others might be conscious of the securities investment but do not understand which security will give a better return than the other. If Mr. Lynch answers this question, more investors from other industries will be interest on security investment. Mr. Lynch can let us know how to minimize market risks since avoiding it by diversification is impossible. He will suggest other avenues investors can use to minimize the risks associated with the type of security they have invested. Expectations of investors are high return, but market risk being included in the equation then the possibility of high return becomes slim. If investors have been armed with that kind of information regarding securities investment, we can be rest assured the number of investors in securities will increase. This will be a boost to our nation’s economy. To calculate the cost of equity division of cost of structure will need the use of Capital Asset Pricing Model (CAPM) or by Dividend Growth Model (DGM). The cost of debt can be calculated by use of historical (coupon) interest rate or market based interest rate The techniques used to calculate the estimate of divisional cost of capital are referred to as pure play approach. This technique is used to calculate riskier division is the security market line (SML) while for conservation division subjective approach technique would be used to estimate the cost of capital. The main challenge experienced during the estimation of the cost of capital for a division is that it hardly has securities for to trade in the market, so it is a problem to notice the risk of division in the markets’