portfolio? 1 4. The market portfolio has a beta of (a) 0. (b) 1. (c) -1. (d) 0.5. (e) none of the above 5. The risk-free rate and the expected market rate of return are 0.06 and 0.12‚ respectively. According to the capital asset pricing model (CAPM)‚ the expected rate of return on security X with a beta of 1.2 is equal to (a) 0.06. (b) 0.144. (c) 0.12. (d) 0.132 (e) 0.18 6. Which statement is true regarding the Capital Market Line (CML)? (a) The CML is the line from the risk-free rate through
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market‚ because we are projecting the future cash flows. Joanna calculated this by using historical data. However cost of debt should be calculated using current YTM of debt. iii. Cost of Equity Joanna calculated cost of debt by using following CAPM formula: Cost of
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Section A One of the most common criticisms of DCF models is that any forecast beyond a couple of years is questionable. Investors‚ therefore‚ are alleged to be better off using more certain‚ near-term earnings forecasts. Such reasoning makes no sense‚ for at least two reasons. First‚ a key element in understanding a business’s attractiveness involves knowing the set of financial expectations the price represents. The market as a whole has historically traded at a price-to-earnings multiple in
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Model (CAPM) are similar in that they assume an almost "perfect world" scenario. Initially‚ CAPM assumes
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Introduction Kimi Ford is a portfolio manager at NorthPoint Group‚ a mutual-fund management firm. She is evaluating Nike‚ Inc. (“Nike”) to potentially buy shares of their stock for the fund she manages‚ the NorthPoint Large-Cap Fund. This fund mostly invests in Fortune 500 companies‚ with an emphasis on value investing. This Fund has performed well over the last 18 months despite the decline in the stock market. Ford has done a significant amount of research through analysts’ reports
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Executive Summary Main differences of Zeus from its main competitor are its customer-oriented services‚ their core strategy of teamwork and they used municipal bond fund to purchase securities. Estimation of risk-adjusted returns is important to Zeus as In Zeus opinion‚ investors will not pay for the higher return generated by merely taking the higher risk. Investors demand Zeus to utilise professional skills to provide them with a return above the benchmark. There are also advantages and disadvantages
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Accounting for Uncertainty in Discounted Cash Flow Valuation of Upstream Oil and Gas Investments∗ by William H. Knull‚ III‚ Scott T. Jones‚ Timothy J. Tyler & Richard D. Deutsch∗∗ Valuing future income streams from the production of oil and gas is a welldeveloped discipline within the industry and among sophisticated investors. Valuations drive companies’ investment decisions and market transactions every day. In the context of resolving disputes‚ especially international ones‚ arbitral tribunals
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Explain. MGMT 310 - Financial Management 4 Systematic risk vs. Unsystematic risk (p 447) - Solution • The amount of systematic risk is measured by the of an asset. • E(RI) = .25(.02) + .50(.21) + .25(.06) = .1250‚ or 12.50% • Using the CAPM to find the of Stock I‚ we find: .1250 = .04 + .07I I = 1.21 • The total risk of the asset is measured by its standard deviation. • I2 = .25(.02 – .1250)2 + .50(.21 – .1250)2 + .25(.06 – .1250)2 = .00743 • I = (.00743)1/2 = .0862‚ or
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the expected rate of return of an individual security as a function of systematic‚ non-diversifiable risk (itsbeta).[1] Investopedia explains Security Market Line (SML) The SML essentially graphs the results from the capital asset pricing model (CAPM) formula. The x-axis represents the risk (beta)‚ and the y-axis represents the expected return. The market risk premium is determined from the slope of the SML. The security market line is a useful tool in determining whether an asset being considered
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currently undervalued. * Utilizing the two-stage DDM approach‚ the value of Wal-Mart’s stock price is $83.95. Similar to the constant growth DDM valuation conclusion‚ the Wal-Mart stock is currently undervalued. * The capital asset pricing model (CAPM) was used to determine the appropriate required rate of return on Walm-Mart’s stock. The required rate of return for Wal-Mart is 7.01% * In following the concepts of the price/earnings (P/E) multiple approach‚ Wal-Mart’s intrinsic value based upon
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