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

You have recently been hired by swan motors inc smi in its

You have recently been hired by Swan Motors, Inc. (SMI), in its relatively new treasury management department. SMI was founded 8 years ago by Joe Swan. Joe found a method to manufacture a cheaper battery with much greate ...

1 what distinguishes a spot market from a derivatives

1. What distinguishes a spot market from a derivatives market? What distinguishes the money market from the capital market? How does the efficiency of a market affect an investor's strategy? 2. The following is an excerp ...

Capital-budgeting criteriathe net present value npv of a

Capital-Budgeting Criteria The net present value (NPV) of a project is a measure of the difference between the project's value and its cost. The internal rate of return (IRR) is another measure of the project's attractiv ...

The yield to maturity on 1-year zero-coupon bonds is

The yield to maturity on 1-year zero-coupon bonds is currently 6%; the YTM on 2-year zeros is 7%. The Treasury plans to issue a 2-year maturity coupon bond, paying coupons once per year with a coupon rate of 8.5%. The fa ...

An analyst predicted last year that the stock of logistics

An analyst predicted last year that the stock of Logistics, Inc., would offer a total return of at least 17% in the coming year. At the beginning of the year, the firm had a stock market value of $9 million. At the end o ...

Explain both interest rate swaps and currency swaps which

Explain both interest rate swaps and currency swaps. Which instrument has a greater credit risk: an interest rate swap or a currency swap? How can multinational companies utilize a currency swap to reduce borrowing costs ...

Straight supply is a major supplier of medical components

Straight Supply is a major supplier of medical components to large pharmaceutical corporations. Bonnie Straight is a second generation CEO of the company founded by her father forty years ago. Originally established in M ...

1 how is performance management at dmg world media

1. How is performance management at dmg world media different from traditional performance management systems at other companies? 2. What was the impetus for developing a different performance management system at dmg wo ...

Explain the advantages and disadvantages of implementing

Explain the advantages and disadvantages of implementing portfolio insurance using stock and puts in comparison to using stock and futures in a dynamic hedge strategy ? Explain how a portfolio manager might justify the p ...

1 describe a 2 x 2 x 3 factorial design how many

1. Describe a 2 x 2 x 3 factorial design. How many independent variables are involved, and how many levels are there of each variable? How many experimental conditions are in a 2 x 2 x 3 factorial design? 2. Distinguish ...

  • 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

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