CHAPTER 10 Return and Risk: The Capital Asset Pricing Model (CAPM) Multiple Choice Questions I. DEFINITIONS PORTFOLIOS a 1. A portfolio is: a. a group of assets‚ such as stocks and bonds‚ held as a collective unit by an investor. b. the expected return on a risky asset. c. the expected return on a collection of risky assets. d. the variance of returns for a risky asset. e. the standard deviation of returns for a collection of risky assets. Difficulty level: Easy PORTFOLIO WEIGHTS
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Pricing of Securities in Financial Markets 40141 – How well does the power utility consumption CAPM perform in UK Stock Returns? ******** 1 Hansen and Jagannathan (1991) LOP Volatility Bounds Volatility bounds were first derived by Shiller (1982) to help diagnose and test a particular set of asset pricing models. He found that to price a set of assets‚ the consumption model must have a high value for the risk aversion coefficient or have a high level of volatility. Hansen
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Part One: The CAPM Olter‚ Inc. is starting its risk management program for the company and has asked for your help in determining critical risk measurements for the firm. The company has identified several factors in the market that they believe are critical for your tasks: The risk-free rate is 6% The required return on the average stock is 13% Olter’s average return is 13% Required: What is Olter’s beta coefficient? How does the beta coefficient influence the firm’s stock value? What
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CAPM vs. APT Asset Pricing Model are very useful tools that enable financial annalists or just simply independent investors evaluate the risk in an specific investment and at the same time set a specific rate of return with respect the amount of risk of an individual investment or a portfolio. The CAPM method while simpler than the ATP method takes into consideration the factor of time and does not get too wrapped up over the Systematic risk factors that sometimes we can not control. In this paper
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Pricing Model (CAPM) Versus the Discounted Cash Flows Method Managerial Analysis/BUSN 602 Capital asset pricing model or CAPM is a financial model that measures the risk premium inherent in equity investments like common stocks while Discounted Cash Flow or DCF compares the cost of an investment with the present value of future cash flows generated by the investment with the mindset being that if the cash flow is positive‚ then the investment is good. Generally speaking‚ CAPM is a model that
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M.Sc. Economics and Finance Dissertation INTEREST RATE SENSITIVITY OF STOCK RETURNS Acknowledgements I would like to thank my supervisor Dr. Illias Tsiakas for his continued support and Encouragement. I would like to thank my father‚ mother and my sister for their tremendous support and understanding not only through the period of this thesis but for the period of the entire masters programme. In addition I would like to thank some of my friends who supported and encouraged me. Special thanks
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the combination of the CAPM model and the MM theory Dilina Kuerban (FIN620 Long-term financial management) 11/15/2014 Abstract 1. Modigliani- Miller theorem……………………….......………..….……………… (1)Modigliani and Miller Proposition --No tax scenario…………………………… (2)Modigliani and Miller Proposition--with taxes scenario………………………… 2. Combination of CAPM model and MM theory………………………………….. 3. A case study……………………………………………………………………….... 4. Limitation of combination of CAPM and MM theory………………..…………
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‘Portfolio theory and the capital asset pricing model (CAPM) are essential tools for portfolio managers and other stock market investors’ 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. PORTFOLIO THEORY Modern portfolio theory has one‚ and really only one‚ central theme: “In constructing their portfolios investors need to look at
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capital structure and cost of capital in China’s multinational business management General Outline 1.The goals of the multinational enterprises’ capital structure 2. The affect on cost of equity capital in the multinational business management. (CAPM MODEL‚ BETA ([pic]). 3. The affect on cost of debt capital in the multinational business management. (It differ from cost of equity capital‚ cost of debt capital will be impacted by the pros and cons of multinational business management. I. Play
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1. Cohen calculated Nike’s weighted average cost of capital (WACC) to be 8.3%. I find error in this calculation as a result of the following points of disagreement: a) Weighting of Capital Structure: Use of book values of capital rather than the market values b) Cost of Debt Calculation: Incorrect method for calculating debt c) Tax Rate: Use of a tax rate derived from the summation of state and statutory taxes instead of the firm’s marginal tax rate 2. Revised Calculation of WACC: WACC
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