market risk on a asset price. Beta is the change of an asset price to change in
overall market price, and a measure of relative volatility of the market risk
contribution.7.2 Risk free assets have beta close to Zero. The investors' normal expectancy will be
over and above the return on risk free securities, in case they invest in shares,
which are risky. This is known as premium over the risk-free rate. Such expected
premium on all the assets shall be added to determine the average premium and
this is to be multiplied by the particular asset’s beta.
Income Valuation of Fixed Securities
(Source:- Financial Management and Policy by Prof. James.c.Vain Horne)The following are the important fixed income securities:-
- Preference Shares
- Convertible Debentures
- Non-convertible debentures
- Indira Vikas Patras
- Government Securities
- Money market instruments
- Preference Shares
1.1 Preference shares reflect a combination of some of the characteristics of equity
shares and debentures. The features of preference shares are as follows :
- Preference Shares carry fixed rate of dividend per annum.
- Dividend on Preference Share is payable out of distributable profits. In case
of inadequacy of distributable profits, the preference dividend is not payable. - Dividend on Preference Shares is generally cumulative. Dividend not paid in
one year must be made up subsequently, and it has priority over equity. - Preference Shares are redeemable
- Convertible Debentures
2.1 A convertible bond is converted into equity shares in future. It may be
compulsory or optional. The features of this bond include conversion ratio,
conversion price, conversion timing and conversion of the stock value.
2.2 Conversion Ratio