Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

Assignment 1: Risk, Return, and Capital Asset Pricing Model Problems

In this assignment, suppose that you are nearing graduation and applying for a job with a financial services firm.  As part of the evaluation process, you are asked to provide answers to a series of problems on risk return and the capital asset pricing model. Your responses will be based on the data for Company A and Company B below.

Year     Company A's Return    Company B's Return    Average Market Return
1995            5.0%                             4.0%                        2.0%
1996            4.0%                            -8.0%                       6.0%
1997            3.0%                             2.0%                       7.0%
1998            4.0%                             5.0%                       8.0%
1999            8.0%                             3.0%                       9.0%
2000            5.0%                             4.0%                       10.0%
2001            4.0%                             1.0%                       11.0%
2002            4.0%                             8.0%                       10.0%
2003            4.0%                             9.0%                        9.0%
2004            7.0%                            10.0%                       8.0%
2005            8.0%                            -2.0%                        7.0%
2006            9.0%                             7.0%                         6.0%
2007           10.0%                            5.0%                         5.0%
2008            7.0%                             4.0%                         6.0%
2009            -4.0%                           2.0%                          7.0%
2010            -5.0%                          11.0%                         8.0%
Procedure

1. For each company,

a. Find out the mean and standard deviation of the returns.

b. Compute the coefficient of variation.

c. Find out which company appears to be more volatile with respect to its risk.

d. Identify the company with which you would choose to invest.

2. Using the CAPM, compute the expected return rate of return for Companies A and B. Assume a Market Risk Premium of 3%, a Risk-Free Rate of 4%, a Beta for company A of .90 and a Beta for company B of 1.3.

3. Using the CAPM, compute the expected rate of return for a portfolio with 25% stake in company A and a 75% stake in company B.  Suppose a Market Risk Premium of 3% and a Risk-Free Rate of 4%.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M92039

Have any Question? 


Related Questions in Basic Finance

Congratulationsnbsp due to your education skills you have

Congratulations!  Due to your education, skills you have learned, and hard work, you have successfully managed your fledgling start-up company to the point where you are seriously considering an Initial Public Offering ( ...

An electronic retail chain wishes to minimize its ordering

An electronic retail chain wishes to minimize its ordering costs for a particularly popular model of laptop computer. This retail has a line credit to finance its inventory and the current holding rate is 5.5%. The chain ...

Discussionpart 1 please respond the following question no

Discussion Part 1 please respond the following question no less then 350 words (original work, no plagiarism, 1 reference "dividends" please respond to the following: • Assess the market and shareholder behaviors when a ...

Evaluate the expression uwxyz exactly as parenthesized ie

Evaluate the expression (u+)+(w+x)+(y+z) exactly as parenthesized (i.e., do not use the commutative or associative laws to reorder the additions). Give register-level machine code to provide the maximum possible parallel ...

1 comment on the following statement a key benefit of

1. Comment on the following statement: A key benefit of leasing is that it allows for the effective depreciation of land. 2. How would the availability of floating-rate debt rather than fixed-rate debt affect the lease-v ...

Suppose you expected the return on the market to be 10 and

Suppose you expected the return on the market to be 10% and the return on the risk-free asset to be 2%. If you are considering a stock with a beta of 1.2, what is the expected return on this stock according to the securi ...

1 what is the relationship between the price of a financial

1. What is the relationship between the price of a financial asset and the return that investors require on that asset, holding other factors constant? 2. Define the following terms commonly used in bond valuation: (a) p ...

1 how do reward systems serve as barriers to enterprise

1. How do reward systems serve as barriers to enterprise integration? 2. In your words, describe and illustrate the great divide. Do you believe the great divide phenomenon is as widely experienced as the text indicates? ...

A machine will produce 10000 units a year the units are

A machine will produce 10000 units a year. The units are priced at $30 and have a variable cost of $7. There is a fixed cost of $50000 per year. the company pays no tax and has 0 tax rate. What is the present value of op ...

1 discuss some advantages and disadvantages to consider

1. Discuss some advantages and disadvantages to consider when considering FDI in a developing nation. 2. Identify a business that is not already franchising but has potential for international franchise success. Support ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen