Answer: Financial Management is all about planning, organizing, directing and controlling the financial pursuits such as acquisition and utilization of capital.
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8 Dec 2019 — 8 Dec 2019The primary aim of financial management is to maximise shareholders' wealth. 3 Marks Questions. 3.Wealth maximisation is the primary objective.
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From Financial Management
EAR =
(1 + r/m)^m − 1
= (1 + 0.12/12)^{12} − 1 = (1.01)^{12} − 1 ≈ 1.1268 − 1 = 12.68% (approx.)
Relevance vs irrelevance:
Hence, assumptions decide whether dividend policy matters.
Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.
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Diversification means spreading investment across different securities so that negative outcomes in one may be offset by others.
Company-specific events are not perfectly correlated across firms. By holding many securities, unsystematic risk is averaged out.
Flow: Single stock → high specific risk → add more stocks → specific risks offset → unsystematic risk ↓
Diversification improves the risk profile of a portfolio by reducing specific risk, but market risk remains.