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

The Capital Asset Pricing Model
1472 Words  6 Pagescomparing and contrasting the effectives of the capital asset pricing model (CAPM), Arbitrage Pricing Theory, and the FamaFrench three factor model when estimating the cost of capital and explaining performance of investment portfolios. The CAPM model was developed by Sharpe (1964) to explain how capital markets set share prices. (Pike and Neale) In result of research by Sharpe (1964), Litner (1965) and Black (1972) the Capital Asset Pricing Model (CAPM) states “the relationship between beta (measure…

Consider Capital Asset Pricing Model
1638 Words  7 PagesName: Li XU Morning group: PGA15 Project group: Management 02 Date: 30/08/2016 Consider the capital asset pricing model. What are the theoretical underpinnings of this model? What can you say about the empirical implications of this model? The CAPM (capital asset pricing model) is a model used to evaluate a theoretically appropriate required rate of return of an asset in finance field, providing information to investor to make decisions about investment portfolios and guide investors’ investment…

Capital Asset Pricing Model and Arbitrage Pricing Theory
3608 Words  14 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…

Capital Asset Pricing Model ( Capm )
1237 Words  5 PagesIntroduction Capital Asset Pricing Model (CAPM) was developed in 1964 based on Modern Portfolio Theory. CAMP widely used in investment decisions and financial areas of the company. The main research of CAMP are the relationship between expected rate of return and risk assets in the stock market, as well as how the equilibrium price formation. In terms of the valuation of assets, CAPM primarily used to determine whether the securities market be mispricing. Capital Asset Pricing Model measure risk…

The Capital Asset Pricing Model
1717 Words  7 PagesFrom the very time of its development, there have been many attempts to prove the validity of the Capital Asset Pricing Model. For instance, Black, Jensen and Scholes (1972) performed a test to check if securities are priced accordingly to their systematic risk. In order to test the theory that there was a positive linear relation between the expected return and beta, instead of the individual stock, they used monthly return data and portfolios. They obtained ten portfolios of monthly returns for…

The Capital Asset Pricing Model
3150 Words  13 PagesIntroduction The Capital Asset Pricing Model (“CAPM”) was introduced by Sharpe (1964), Lintner (1965) and Mossin (1966), attempts to provide investors with an understanding in relation to the expected returns of their investment. However, this theory has been criticised by some empirical models resulted from the unrealistic assumptions. This paper will critically analyse the limitation of the CAPM and will discuss Arbitrage Pricing Theory (“APT”) and FamaFrench (“FF”) ThreeFactor Model (“TFM”) as the…

The Theory of Capital Asset Pricing Model
2580 Words  10 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…

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 ( Capm )
1495 Words  6 PagesIntroduction Capital Asset Pricing Model (CAPM) was developed in 1964 based on Modern Portfolio Theory. CAMP widely used in investment decisions and financial areas of the company. The main research of CAMP are the relationship between expected rate of return and risk assets in the stock market, as well as how the equilibrium price formation. In terms of the valuation of assets, CAPM primarily used to determine whether the securities market be mispricing. Capital Asset Pricing Model measure risk…

Capital Asset Pricing Model
1791 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…
More about Capital Asset Pricing Model and Answer Score Explanation Essay example

The Capital Asset Pricing Model
1472 Words  6 Pages 
Consider Capital Asset Pricing Model
1638 Words  7 Pages 
Capital Asset Pricing Model and Arbitrage Pricing Theory
3608 Words  14 Pages 
Capital Asset Pricing Model ( Capm )
1237 Words  5 Pages 
The Capital Asset Pricing Model
1717 Words  7 Pages 
The Capital Asset Pricing Model
3150 Words  13 Pages 
The Theory of Capital Asset Pricing Model
2580 Words  10 Pages 
Essay on Capital Asset Pricing Model
913 Words  4 Pages 
Capital Asset Pricing Model ( Capm )
1495 Words  6 Pages 
Capital Asset Pricing Model
1791 Words  8 Pages