Capital Asset Pricing Model : The CAPM or the Capital Asset Pricing Model is a model that helps in determining a theoretically correct required rate of return of an asset that helps in making decisions related to the addition of assets to a well-diversified portfolio. The model considers the sensitivity of assets to non-diversifiable risk. It is represented by beta (ß) or the expected return of the market and the expected return of a theoretical risk-free asset. Beta: Beta is the covariance of a security with the market upon the variance of the market. It measures the change in percentage in the excess return of a particular security for 1% change in the excess return of a market portfolio or a benchmark portfolio. The beta of a portfolio is the weighted average beta of the overall stocks in a portfolio. It can be calculated using the formula given below. Where, is the beta of a portfolio. is the weight of a stock. To determine: Expected return of portfolio, consisting of 60% of A stock and 40% of C stock.

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Answer 1

Question

Chapter 12, Problem 31P

Summary Introduction

Capital Asset Pricing Model:

The CAPM or the Capital Asset Pricing Model is a model that helps in determining a theoretically correct required rate of return of an asset that helps in making decisions related to the addition of assets to a well-diversified portfolio.

The model considers the sensitivity of assets to non-diversifiable risk. It is represented by beta (ß) or the expected return of the market and the expected return of a theoretical risk-free asset.

Beta:

Beta is the covariance of a security with the market upon the variance of the market. It measures the change in percentage in the excess return of a particular security for 1% change in the excess return of a market portfolio or a benchmark portfolio. The beta of a portfolio is the weighted average beta of the overall stocks in a portfolio.

It can be calculated using the formula given below.

Where,

is the beta of a portfolio.

is the weight of a stock.

To determine:

Expected return of portfolio, consisting of 60% of A stock and 40% of C stock.

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Answer 2

Question

Chapter 12, Problem 31P

Summary Introduction

Capital Asset Pricing Model:

The CAPM or the Capital Asset Pricing Model is a model that helps in determining a theoretically correct required rate of return of an asset that helps in making decisions related to the addition of assets to a well-diversified portfolio.

The model considers the sensitivity of assets to non-diversifiable risk. It is represented by beta (ß) or the expected return of the market and the expected return of a theoretical risk-free asset.

Beta:

Beta is the covariance of a security with the market upon the variance of the market. It measures the change in percentage in the excess return of a particular security for 1% change in the excess return of a market portfolio or a benchmark portfolio. The beta of a portfolio is the weighted average beta of the overall stocks in a portfolio.

It can be calculated using the formula given below.

Where,

is the beta of a portfolio.

is the weight of a stock.

To determine:

Expected return of portfolio, consisting of 60% of A stock and 40% of C stock.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 3

Question

Chapter 12, Problem 31P

Summary Introduction

Capital Asset Pricing Model:

The CAPM or the Capital Asset Pricing Model is a model that helps in determining a theoretically correct required rate of return of an asset that helps in making decisions related to the addition of assets to a well-diversified portfolio.

The model considers the sensitivity of assets to non-diversifiable risk. It is represented by beta (ß) or the expected return of the market and the expected return of a theoretical risk-free asset.

Beta:

Beta is the covariance of a security with the market upon the variance of the market. It measures the change in percentage in the excess return of a particular security for 1% change in the excess return of a market portfolio or a benchmark portfolio. The beta of a portfolio is the weighted average beta of the overall stocks in a portfolio.

It can be calculated using the formula given below.

Where,

is the beta of a portfolio.

is the weight of a stock.

To determine:

Expected return of portfolio, consisting of 60% of A stock and 40% of C stock.

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 12, Problem 31P

Summary Introduction

Capital Asset Pricing Model:

The CAPM or the Capital Asset Pricing Model is a model that helps in determining a theoretically correct required rate of return of an asset that helps in making decisions related to the addition of assets to a well-diversified portfolio.

The model considers the sensitivity of assets to non-diversifiable risk. It is represented by beta (ß) or the expected return of the market and the expected return of a theoretical risk-free asset.

Beta:

Beta is the covariance of a security with the market upon the variance of the market. It measures the change in percentage in the excess return of a particular security for 1% change in the excess return of a market portfolio or a benchmark portfolio. The beta of a portfolio is the weighted average beta of the overall stocks in a portfolio.

It can be calculated using the formula given below.

Where,

is the beta of a portfolio.

is the weight of a stock.

To determine:

Expected return of portfolio, consisting of 60% of A stock and 40% of C stock.

Expert Solution & Answer

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Check out a sample textbook solution

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Answer 5

Chapter 12, Problem 31P

Summary Introduction

Capital Asset Pricing Model:

The CAPM or the Capital Asset Pricing Model is a model that helps in determining a theoretically correct required rate of return of an asset that helps in making decisions related to the addition of assets to a well-diversified portfolio.

The model considers the sensitivity of assets to non-diversifiable risk. It is represented by beta (ß) or the expected return of the market and the expected return of a theoretical risk-free asset.

Beta:

Beta is the covariance of a security with the market upon the variance of the market. It measures the change in percentage in the excess return of a particular security for 1% change in the excess return of a market portfolio or a benchmark portfolio. The beta of a portfolio is the weighted average beta of the overall stocks in a portfolio.

It can be calculated using the formula given below.

Where,

is the beta of a portfolio.

is the weight of a stock.

To determine:

Expected return of portfolio, consisting of 60% of A stock and 40% of C stock.

Answer 6

Chapter 12, Problem 31P

Summary Introduction

Capital Asset Pricing Model:

The CAPM or the Capital Asset Pricing Model is a model that helps in determining a theoretically correct required rate of return of an asset that helps in making decisions related to the addition of assets to a well-diversified portfolio.

The model considers the sensitivity of assets to non-diversifiable risk. It is represented by beta (ß) or the expected return of the market and the expected return of a theoretical risk-free asset.

Beta:

Beta is the covariance of a security with the market upon the variance of the market. It measures the change in percentage in the excess return of a particular security for 1% change in the excess return of a market portfolio or a benchmark portfolio. The beta of a portfolio is the weighted average beta of the overall stocks in a portfolio.

It can be calculated using the formula given below.

Where,

is the beta of a portfolio.

is the weight of a stock.

To determine:

Expected return of portfolio, consisting of 60% of A stock and 40% of C stock.

Answer 7

Chapter 12, Problem 31P

Summary Introduction

Capital Asset Pricing Model:

The CAPM or the Capital Asset Pricing Model is a model that helps in determining a theoretically correct required rate of return of an asset that helps in making decisions related to the addition of assets to a well-diversified portfolio.

The model considers the sensitivity of assets to non-diversifiable risk. It is represented by beta (ß) or the expected return of the market and the expected return of a theoretical risk-free asset.

Beta:

Beta is the covariance of a security with the market upon the variance of the market. It measures the change in percentage in the excess return of a particular security for 1% change in the excess return of a market portfolio or a benchmark portfolio. The beta of a portfolio is the weighted average beta of the overall stocks in a portfolio.

It can be calculated using the formula given below.

Where,

is the beta of a portfolio.

is the weight of a stock.

To determine:

Expected return of portfolio, consisting of 60% of A stock and 40% of C stock.

Answer 8

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Answer 9

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Answer 10

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Answer 11

Ch. 12 - Prob. 1CC Ch. 12 - How is the expected return of a portfolio related...Ch. 12 - What determines how much risk will be eliminated...Ch. 12 - When do stocks have more or less correlation?Ch. 12 - What is the market portfolio?Ch. 12 - Prob. 6CC Ch. 12 - Prob. 7CC Ch. 12 - Prob. 8CC Ch. 12 - Prob. 1CT Ch. 12 - What does correlation tell us?

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Chapter 12 Solutions