Capital Asset Pricing Model and Answer Score Explanation Essay example

1230 Words Jun 16th, 2014 5 Pages
(10 points) Suppose CAPM works, and you know that the expected returns on Walmart and Amazon are estimated to be 12% and 10%, respectively. You have just calculated extremely reliable estimates of the betas of Walmart and Amazon to be 1.30 and 0.90, respectively. Given this data, what is a reasonable estimate of the risk-free rate (the return on a long-term government bond)? (Enter the answer with no more nor less than two decimal places, and leave off the % sign. For example, if your answer is 13.97% you should enter it as 13.97 NOT 0.14 nor 14)ABOUT mensajeantonio ~ Smile! You’re at the best WordPress.com site ever
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Assignment 8
25
Tuesday
Jun 2013
Posted by preguntasdemiscursos in finance ≈ Leave a
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Question 6

(10 points) The PSI-20 is an index of the 20 largest market capitalization stocks traded on the Euronext Lisbon Stock Exchange in Portugal. You think that 20 stocks may not give you enough diversification, so you want to expand that list to the top 60 stocks. By doing this, what is the percentage increase in the UNIQUE relations between any two stocks in your portfolio that you will have to worry about? (No more than two decimals in the percentage drop, but do not enter the % sign.)

Your Answer Score Explanation
831.58 10.00
Total 10.00/10.00
Question Explanation
An important calculation to emphasize the importance of relations among stocks in a portfolio.
Question 7

(10 points) The CAPM states that the realized/actual return on an asset in any period will be the risk free rate plus beta times the market risk premium.

Your Answer Score Explanation
False 10.00 Correct. You understand a simple but important difference.
Total 10.00/10.00
Question Explanation
A simple, but widely misunderstood, difference between actual outcome(s) and the expected one in an uncertain word.
Question 8

(10 points) Suppose CAPM works, and you know that the expected returns on IBM and Google are estimated to be 11% and 9.5%, respectively. You have just calculated extremely reliable estimates of the…