TUI UNIVERSITY
Module 3 SLP
FIN301: Principles of Finance
Dr. Sharifzadeh
August 31, 2011
Starbuck’s CAPM and Sources for Capital By definition beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is used in the capital asset pricing model (CAPM), a model that calculates the expected return of an asset based on its beta and expected market returns (Investopedia, 2011). According to Wikipedia (2011), in finance, CAPM is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset. This session long project will analyze Starbuck’s CAPM and sources for capital. Using Yahoo Finance, it shows that Starbuck’s estimated beta coefficient is at 1.26 percent: (Ra-Rf)/ (Rm-Rf) = Beta. Starbucks “Beta” coefficient is a measure of the stock’s volatility in relation to the rest of the market. The Beta is calculated for individual companies using regression analysis. The beta coefficient is a key parameter in the CAPM. It measures the part of the asset’s statistical variance that cannot be mitigated by the diversification provided by the portfolio of many risky assets, because it is correlated with the return of the other assets that are in the portfolio (Yahoo Finance, 2011). In order to be successful, an investor must understand and be comfortable with taking risks. Creating wealth is the object of making investments, and risk is the energy that in the long run drives investment returns. My answer to that is
References: Edgar Online. (2011, July). Starbucks Corporation. Retrieved August 30, 2011 from http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=8080978-7541-135529&type=sect&dcn=0001193125-11-212221 InvestorWords.com (2011, August). Retrieved August 24, 2011 from http://www.investorwords.com/1726/equity.html Investopedia (2011, August). Beta. Retrieved on August 30, 2011 from http://www.investopedia.com/terms/b/beta.asp#axzz1WZ8goFmb Investopedia (2011, August). Calculating Beta: Portfolio Math for the Average Investor Retrieved August 24, 2011 from http://www.investopedia.com/articles/financial-theory/09/calculating-beta.asp#axzz1VuxR39J6 Investopedia (2011, August). Risk-Return Tradeoff. Retrieved August 24, 2011 from http://www.investopedia.com/terms/r/riskreturntradeoff.asp#axzz1WZ8goFmb Wikipedia (2011, August). Capital asset pricing model. Retrieved August 30, 2011 from http://en.wikipedia.org/wiki/Capital_asset_pricing_model#The_formula Yahoo Answers. (2007, August). Retrieved August 30, 2011 from http://in.answers.yahoo.com/question/index?qid=20070329044831AAB0TQr