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

Assignmenti have a project in finance i need done i

Assignment I have a project in finance I need done. I attached the details. There must be NO PLAGIARISM, thank you. The report should be atleast 15 Pages. Objectives Students should familiarize themselves with bonds and/ ...

A wetted-wall column as illustrated in figure 304 is used

A wetted-wall column, as illustrated in Figure 30.4, is used as a mass-transfer device for transferring ethyl acetate liquid to an air stream by a mass-transfer limited evaporation process. At the current conditions of o ...

Five years ago northwest water nww issued 50000000 face

Five years ago, NorthWest Water (NWW) issued $50,000,000 face value of 30-year bonds carrying a 14% (annual payment) coupon. NWW is now considering refunding these bonds. It has been amortizing $3 million of flotation co ...

You have been asked to evaluate the effects of a new

You have been asked to evaluate the effects of a new educational video that was developed to reduce racial prejudice among adolescents. You plan to administer a pretest measure of racial attitudes to 60 adolescent partic ...

1 contact your local ham radio organization and take a

1. Contact your local ham radio organization and take a certification course. Use your certification to get involved in local response. You can get more information from the Amateur Radio Relay League (ARES; http://www.a ...

Raymond borrowed 300000 from loans r us company the line of

Raymond borrowed $3,000.00 from Loans R Us Company. The line of credit agreement provided for repayment of the loan in equal monthly payments of $668.76 which includes interest of 9.00 % per annum calculated on the unpai ...

1 how may the use of leases shift the risk of rising

1. How may the use of leases shift the risk of rising expenses from the lessor to the lessee? 2. What is the difference between base or face rents and effective rents? 3. What is meant by useable vs. rentable space? 4. W ...

1 what is political risk what are the important elements of

1. What is political risk? What are the important elements of political risk? How can companies prepare for political risk? 2. Discuss three of the world's major religions. What are some implications of these religions f ...

1 in talking to brad you mentioned the increasing threat of

1. In talking to Brad, you mentioned the increasing threat of identity theft. Brad seems concerned and after asking him several questions, you determine the following: a. For convenience, Brad has his driver's license nu ...

What is operating cash flow ocf how is it calculatedwhat is

What is operating cash flow (OCF)? How is it calculated? What is free cash flow (FCF)? How is it calculated from OCF? Why do financial managers focus attention on the value of FCF?

  • 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