Risk Management College Essay Example | Topics and Well Written Essays - 1000 words

Risk Management College - Essay Example When the market goes up by 10%, stock B goes down by 3%. A combination of the two stocks will reduce total potential returns (since stock B is under-performing), but also reduce portfolio viability as compared to market changes. Whereas the two stocks are influenced by the market (which is the very definition of systematic risk), they change in opposite directions, which will reduce total portfolio risk. No, portfolio diversification to betas cannot entirely remove potential market risks. While unsystematic risks are eliminated in a larger portfolio, market risks still that affect most of the assets/stocks in a portfolio are not. Even entirely diversified portfolio stocks are vulnerable to market changes. Furthermore, beta coefficients are more reliable for short-term risk-assessment and can be misleading in the long-run. This is so, because beta coefficients mostly reflect past price movements, and are not reliable indicators for assets/stocks with no or recent price history (McClure, B., 2004) IPO, or the Initial Price Offering is the process of bringing private companies to the public market for the first time. The IPO represents a significant stage in the growth of a company, because it provides access to public capital markets and increases company credibility and exposure. Companies usually decide to go public because they need access to additional capital to implement long-term business strategies or use funds for acquisitions. Furthermore, this is capital that does not have to be repaid and does not involve interest payments. IPO also gives opportunities for new future stock offerings. Companies go public also to get media attention. Nowadays IPOs are used as marketing instruments to increase public awareness, and enhance brand name recognition. In other cases companies may go public to change management style and settle managerial problems using the challenging approach of capital restructuring. Task 4: What Steps Are Involved With Taking A Company Public When a company wants to offer their stock to the general public for the first time, the first step is the announcement of its intent (1), and then it usually asks an "underwriter"(2) - usually an investment banking company - to undertake this operation - in return for a fee. The underwriter agrees to pay the issuer a certain number of shares at a certain price, and then resell those shares to buyers. The underwriter and the issuer set a tentative date, and issue a preliminary prospectus (3) is with financial and business information about the issuer. The underwriter then gives presentations to people from the brokerage industry (4) to present good investment opportunities. The issuer then releases the stock to the underwriter (5), and the underwriter releases the stoc