Given the following holding-period returns, LOADING... , compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 1.87 and the risk-free rate is 6 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk?
Given the following holding-period returns, LOADING... , compute the average returns and the standard deviations for the Zemin Corporation and for the market. b. If Zemin's beta is 1.87 and the risk-free rate is 6 percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.) c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 14P
Related questions
Concept explainers
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.
Question
a. Given the following holding-period returns,
compute the average returns and the standard deviations for the Zemin Corporation and for the market.
LOADING...
,b. If Zemin's beta is
1.87
and the risk-free rate is
6
percent, what would be an expected return for an investor owning Zemin? (Note: Because the preceding returns are based on monthly data, you will need to annualize the returns to make them comparable with the risk-free rate. For simplicity, you can convert from monthly to yearly returns by multiplying the average monthly returns by 12.)c. How does Zemin's historical average return compare with the return you believe you should expect based on the capital asset pricing model and the firm's systematic risk?
|
Month
|
Zemin Corp.
|
Market
|
||
|---|---|---|---|---|
|
1
|
5
|
%
|
6
|
%
|
|
2
|
2
|
|
1
|
|
|
3
|
2
|
|
0
|
|
|
4
|
−4
|
|
−1
|
|
|
5
|
4
|
|
3
|
|
|
6
|
3
|
|
4
|
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