Calculate the expected (required) return for each of the following stocks when the risk-free rate is 0.08 and you expect the market return to be 0.14. Stock Beta A 1.72 B 1.14 C 0.76 D 0.44 E 0.03 F -0.79 The following are the historic returns for the Chelle Computer Company: Year Chelle Computer General Index 1 37 15 2 9 13 3 -11 14 4 8 -9 5 11 12 6 4 9 Based on this information, compute the following: a. The correlation coefficient between Chelle Computer and the General Index. b. The standard deviation for the company and the index. c. The beta for the Chelle Computer Company.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Calculate the expected (required) return for each of the following stocks when the risk-free rate is 0.08 and you expect the market return to be 0.14.
|
Stock |
Beta |
|
A |
1.72 |
|
B |
1.14 |
|
C |
0.76 |
|
D |
0.44 |
|
E |
0.03 |
|
F |
-0.79 |
The following are the historic returns for the Chelle Computer Company:
|
Year |
Chelle Computer |
General Index |
|
1 |
37 |
15 |
|
2 |
9 |
13 |
|
3 |
-11 |
14 |
|
4 |
8 |
-9 |
|
5 |
11 |
12 |
|
6 |
4 |
9 |
Based on this information, compute the following:
a. The correlation coefficient between Chelle Computer and the General Index.
b. The standard deviation for the company and the index.
c. The beta for the Chelle Computer Company.
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