BUS FPX 2062 Assessment 2
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Name
Capella university
BUS-FPX2062 Finance Fundamentals
Prof. Name
Date
Assessment Overview
By successfully completing this assessment, learners will demonstrate their proficiency in the following course competencies and scoring guide criteria.
Competency 1: Explain Financial Environments and Concepts
Explain why forecasting and budgeting are essential practices for businesses, governmental agencies, and individuals.
Forecasting and budgeting are vital tools for effective financial management. These practices allow organizations, governments, and individuals to plan proactively, allocate resources efficiently, and make informed financial decisions. Through forecasting, future trends and potential financial challenges can be anticipated, while budgeting provides a structured plan to control expenditures and achieve financial goals. Ultimately, these practices promote stability, efficiency, and long-term success.
Explain the relationship between microeconomics and macroeconomics.
Microeconomics and macroeconomics are interrelated but distinct fields within economics. Microeconomics focuses on the behavior and decisions of individuals and firms, such as consumption, production, and pricing. These micro-level activities collectively shape the broader economy, influencing aggregate demand and economic growth. Conversely, macroeconomic factors—such as inflation, interest rates, and national income—affect the decisions of consumers and businesses at the micro level. In essence, microeconomic behavior drives macroeconomic outcomes, while macroeconomic conditions influence micro-level decision-making.
| Aspect | Microeconomics | Macroeconomics |
|---|---|---|
| Focus | Individual and business decisions | National and global economic performance |
| Scope | Specific markets and industries | Aggregate economy |
| Examples | Pricing strategies, consumer choices | Inflation, unemployment, GDP growth |
| Influence | Shapes macroeconomic trends | Affects individual and business decisions |
Explain how the standard deviation of returns in a portfolio changes as the number of stocks within the portfolio increases.
As the number of stocks in a portfolio increases, the standard deviation of returns generally decreases. This reduction occurs because diversification spreads investment risk across multiple assets, thereby reducing the impact of any single stock’s volatility on the overall portfolio. While diversification cannot eliminate all risk—especially market or systemic risk—it significantly minimizes unsystematic risk, which is associated with individual securities.
Explain which group of stocks makes up the more diversified portfolio.
A portfolio is considered more diversified when it includes a variety of assets from different industries, company sizes, and geographic regions. Incorporating various asset classes—such as bonds, real estate, cash, commodities, and alternative investments—enhances diversification further. By avoiding concentration in a single sector or investment type, investors reduce exposure to specific market fluctuations and achieve more stable returns over time.
| Portfolio Type | Characteristics | Diversification Level |
|---|---|---|
| Concentrated Portfolio | Focuses on one industry or asset type | Low |
| Moderately Diversified Portfolio | Includes multiple industries within one country | Medium |
| Highly Diversified Portfolio | Includes global stocks, bonds, and alternative assets | High |
Competency 2: Apply Financial Computations and Processes
This section focuses on the ability to perform key financial calculations and apply quantitative analysis to investment and financing decisions.
| Task | Description |
|---|---|
| Calculate the amount of a monthly mortgage payment. | Use the standard mortgage formula to determine monthly payments based on principal, interest rate, and loan term. |
| Calculate the approximate price at which a preferred stock will most likely sell. | Estimate using the dividend and required rate of return for preferred shares. |
| Calculate a bond’s value given a specific yield to maturity. | Determine the present value of future coupon payments and the bond’s face value discounted at the yield rate. |
| Calculate the yield or return on a preferred stock. | Compute the dividend income relative to the market price. |
| Calculate the total dollar return on an investment, including both capital gains and dividend income. | Combine changes in stock price with dividend earnings to measure total return. |
| Calculate the Net Present Value (NPV) of an investment and determine whether to proceed with the project. | Evaluate project feasibility by comparing present value of cash inflows with the initial investment. A positive NPV indicates a viable project. |
References
Brigham, E. F., & Ehrhardt, M. C. (2022). Financial Management: Theory & Practice (17th ed.). Cengage Learning.
Mankiw, N. G. (2021). Principles of Economics (9th ed.). Cengage Learning.
BUS FPX 2062 Assessment 2
Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2022). Fundamentals of Corporate Finance (14th ed.). McGraw-Hill Education.
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