Capital Asset Pricing Model and Answer Score Explanation Essay example
Search:
mensajeantonio
Assignment 8
25
Tuesday
Jun 2013
Posted by preguntasdemiscursos in finance ≈ Leave a …show more content…
(10 points) The PSI20 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…

Capital Asset Pricing Model
1781 Words  8 PagesMultifactor Models of Risk and Return. (QUESTIONS) 1. Both the capital asset pricing model and the arbitrage pricing theory rely on the proposition that a norisk, nowealth investment should earn, on average, no return. Explain why this should be the case, being sure to describe briefly the similarities and differences between CAPM and APT. Also, using either of these theories, explain how superior investment performance can be establish. Answer: Both the Capital Asset Pricing Model and the…

Essay on Capital Asset Pricing Model
913 Words  4 Pagesone large publicly traded corporation. 2. Use the CAPM to answer the following questions: a. Find the Expected Rate of Return on the Market Portfolio given that the Expected Rate of Return on Asset "i" is 12%, the RiskFree Rate is 4%, and the Beta (b) for Asset "i" is 1.2. b. Find the RiskFree Rate given that the Expected Rate of Return on Asset "j" is 9%, the Expected Return on the Market Portfolio is 10%, and the Beta (b) for Asset "j" is 0.8. c. What do you think the Beta (β) of your portfolio…

Capital Asset Pricing Model and Arbitrage Pricing Theory
3594 Words  15 PagesCapital Asset Pricing Model and Arbitrage Pricing Theory: Capital Asset Pricing Model (CAPM) is an arithmetical theory that describes the relationship between risk and return in a balanced market. The Capital Assets Pricing Model was autonomously and simultaneously developed by William Sharpe, Jan Mossin, and John Litner. The researches of these founders were published in three different and highly respected journal articles between 1964 and 1966. Since its inception, the model has been used in…

The Theory of Capital Asset Pricing Model
2568 Words  11 PagesHead: Capital Asset Pricing Model Capital Asset Pricing Model Introduction This research paper tends to describe the theory of Capital Asset Pricing Model, which is a theoretical invention much useful for businesspersons and investors who invest with the prevailing risk in the economical environment. The key points of the theory are extracted and highlighted with respect to the explanation of William Sharpe's "A theory of Market Equilibrium under conditions of risk". Capital asset pricing model…

Capital Asset Pricing Model (Capm)
2553 Words  11 PagesIntroduction Capital asset pricing has always been an active area in the finance literature. Capital Asset Pricing Model (CAPM) is one of the economic models used to determine the market price for risk and the appropriate measure of risk for a single asset. The CAPM shows that the equilibrium rates of return on all risky assets are function of their covariance with the market portfolio. This theory helps us understand why expected returns change through time. Furthermore, this model is developed…

The Capital Asset Pricing Model (CAPM)
548 Words  3 Pages5.2.4.6.1. The Capital Asset Pricing Model (CAPM) Financial theory accepts the belief that a share’s return should be proportional to the risk received by its holder. There is a need of a riskreturn equilibrium model. Since the nativity of the efficient market hypothesis (EMH), an equilibrium model was only the Capital Asset Pricing Model (CAPM). The CAPM constitutes of two types of returns, the risk free rate of returns of the Treasury bills and beta times the return on the market portfolio. The…

Capital Asset Pricing Model of Starbucks
445 Words  2 PagesThe inclusion of Starbucks therefore will increase the risk of the portfolio, because the beta for Starbucks is higher than 1.0. The reason is that Starbucks stock has historically been more volatile than the broader market. b. The capital asset pricing model is as follows: INCLUDEPICTURE "http://i.investopedia.com/inv/dictionary/terms/CAPM.gif" * MERGEFORMATINET Source: Investopedia (2012) Therefore the cost of equity for Starbucks is as follows: Ra = 4.5 + 1.28(6.5) Ra = 12.82%…

Essay on The Capital Asset Pricing Model (CAPM)
1863 Words  8 PagesThe Capital Asset Pricing Model (CAPM) Introduction In almost every economics textbook (Ben and Robert, 2001), economists tend to argue: everything’s market price is determined by consumers’ demand and supply in the market, the intersection of which gives us the longterm concept of ‘market equilibrium’. Although it sounds straightforward, it is anything but easy in practice, especially when the assets (like common stock) you are measuring associated with risk and future uncertainties…

Capital Asset Pricing Model Applied to Constant Contact
837 Words  4 Pages6.5%. Using the capital asset pricing model, we can estimate the cost of equity for Constant Contact. The capital asset pricing model is a method of determining the value of a company based on current market characteristics and the historic performance of the company versus the broad market. The capital asset pricing model can be used to calculate the firm's cost of capital, or at least the firm's cost of equity. The cost of equity reflects the firm's cost of using equity capital to finance its…

Testing the Capital Asset Pricing Model Essay
1998 Words  8 PagesTesting the Capital Asset Pricing Model And the FamaFrench ThreeFactor Model By Jiaxin Ling (Cindy) March 19, 2013 Key words: Asset Pricing, Statistical Methods, CAPM, FamaFrench ThreeFactor Model Abstract: This paper examines the Capital Asset Pricing Model(CAPM) and the FamaFrench threefactor model(FF) and the FamaMacBeth model(FM) for the 201211 CRSP database using monthly returns from 25 portfolios for 2 periods July 1931 to June 2012 and July 1631 to June 2012. The theory’s…
More about Capital Asset Pricing Model and Answer Score Explanation Essay example

Capital Asset Pricing Model
1781 Words  8 Pages 
Essay on Capital Asset Pricing Model
913 Words  4 Pages 
Capital Asset Pricing Model and Arbitrage Pricing Theory
3594 Words  15 Pages 
The Theory of Capital Asset Pricing Model
2568 Words  11 Pages 
Capital Asset Pricing Model (Capm)
2553 Words  11 Pages 
The Capital Asset Pricing Model (CAPM)
548 Words  3 Pages 
Capital Asset Pricing Model of Starbucks
445 Words  2 Pages 
Essay on The Capital Asset Pricing Model (CAPM)
1863 Words  8 Pages 
Capital Asset Pricing Model Applied to Constant Contact
837 Words  4 Pages 
Testing the Capital Asset Pricing Model Essay
1998 Words  8 Pages