Ask Question, Ask an Expert


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%

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 discuss the major supply chain aps applications with

1. Discuss the major supply chain APS applications with particular focus on the role and anticipated benefits for each application. 2. Discuss overall information flow and the major role of each APS system component. 3. ...

As a percentage of yield whats the minimum and maximum

As a percentage of yield what's the minimum and maximum tensile stress to be seen by a production quantity of these bolts? With the estimated minimum in-service tensile stress in mind, what possible bolt or joint failure ...

Ginger baker inc just paid an annual dividend of 3 a share

Ginger Baker, Inc. just paid an annual dividend of $3 a share and this dividend is expected to grow at a rate of 4% per year for the foreseeable future. If the discount rate for Ginger Baker is 9%, what is the current pr ...

1 suppose that in the lasim problem the transport cost

1. Suppose that in the Lasim problem, the transport cost between the production site and the warehouse is not negligible. In this case, the inventory replenishment of product A-124 has a transport cost of € 25. Determine ...

You have to make a balloon payment on your house five years

You have to make a balloon payment on your house five years from now of $15,000. If money can earn an average of 6 percent a year for the five-year period, what factor will you use to determine what to deposit now?

A manufacturer of cream filled donuts wants to make sure

A manufacturer of cream filled donuts wants to make sure that its automatic filling process is on target. Based on a sample of 25 donuts the mean weight of cream filling is estimated to be 15 grams with a standard deviat ...

Go to yahoo and download recent balance sheets for

Go to Yahoo! and download recent balance sheets for Microsoft, Merck, Archer Daniels Midland, and General Mills (ticker symbols MSFT, MRK, ADM, and GIS, respectively). Calculate several debt ratios for each company and c ...

Please in your own words what are dividends what are some

Please, in your own words. What are dividends? What are some different types of dividends?

1 describe one historical incident in which human

1. Describe one historical incident in which human participants were injured or abused as part of a research study. Describe how the injury or abuse would have been avoided if the researchers had followed today's ethical ...

Required for each of the following numbered items you are

Required For each of the following numbered items, you are to select the lettered item(s) that indicate(s) its effect(s) on the corporation's statements. If more than one effect is applicable to a particular item, be sur ...

  • 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