+1-415-315-9853

info@mywordsolution.com

## Finance

 Basic Finance Corporate Finance Financial Management Financial Econometrics Portfolio Management Risk Management Public Finance Business Law & Ethics

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

### 1 in addition to the key words you should also be able to

1. In addition to the key words, you should also be able to define the following terms: third-variable problem directionality problem confounding variable random process placebo mundane realism experimental realism 2. De ...

### 1 what factors must one consider when deciding on the

1. What factors must one consider when deciding on the appropriate underlying asset for a hedge? 2. For each of the following hedge termination dates, identify the appropriate contract expiration. Assume the available ex ...

### Because vigorous growth company retains and invests all of

Because Vigorous Growth Company retains and invests all of its earnings (in positive NPVprojects!), the firm currently pays no dividends. Investors believe that the firm will pay itsfirst dividend (of \$12 per share) 20 y ...

### 1nbspcalculate the cost of new common equity financing of

1. Calculate the cost of new common equity financing of stock R using Gordon Model Round the answers to two decimal places in percentage form (Write the percentage sign in the "units" box) Last Year Dividend Growth Rate ...

### 1 what are positive and negative financial leverage how are

1. What are positive and negative financial leverage? How are returns or losses magnified as the degree of leverage increases? How does leverage on a before-tax basis differ from leverage on an after-tax basis? 2. In wha ...

### Potters violin co has just issued nonconvertible preferred

Potter's Violin Co. has just issued nonconvertible preferred stock with a par value of \$100 and an annual dividend rate of 18.66 percent. The preferred stock is currently selling for \$119.42 per share. which rate of retu ...

### Suppose you are comparing two companies that are in the

Suppose you are comparing two companies that are in the same line of business. Company C has an operating cycle of 40 days, and Company D has an operating cycle of 60 days. Company C has a current ratio of 3, and Company ...

### Consider the following listing for 10-year treasury note

Consider the following listing for 10-year Treasury note futures on the Chicago Board of Trade. One futures contract for Treasury notes = \$100,000 face value of 10-year 6% notes. a. If on this day you bought two contract ...

### Adding a budgetbullusing microsoft project software amend

Adding a Budget • Using Microsoft Project software amend your WBS to include your project budget • Make sure that you use your resource sheet in Microsoft project to list all materials, work classification units and reso ...

### Determine whether each of the following hypotheses is

Determine whether each of the following hypotheses is testable and refutable; if not, explain why. a. The color red as seen by males is different from the color red as seen by females. b. A list of three-syllable words i ...

• 13,132 Experts

## 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.

### WalMart Identification of theory and critical discussion

Drawing on the prescribed text and/or relevant academic literature, produce a paper which discusses the nature of group

### 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