Word Count: 3750 Word Count: 3750 Table Of Content Objective 2 Part A - Passively managed investment Optimal passive fund from historical data estimates Methodology overview 3 Steps in Practice 4 Optimal passive fund from CAPM model Applying CAPM 6 CAPM’s application 6 Steps in practice 6 Part B - Actively managed investment Problem defined 10 Solution: Black – Litterman Model 11 Application for Dow Jones Plus Fund 12 Review on the Portfolio 13 Conclusion 14 Part
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Capital Structure and the Cost of Capital: TheoryChapter 13 :Financial Theory and Corporate Policy (Copeland and Weston) INTRODUCTION In the summary of the following chapter is shown the mixture of the financial source of a company. There are the sources of debt and equity but also the financing affects of the cost of capital. Furthermore‚ it shows its connections to the shareholder’s wealth and how to calculate the cost of capital in a specific situation where the risk is depending from the case
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An Empirical Test of German Stock Market Efficiency A Master Thesis submitted by Lindsay Gillette (188816) to Prof. Dr. Wolfgang Härdle in partial fulfillment of the requirements for the degree of Master of Science C.A.S.E. – Center for Applied Statistics and Economics Institute for Statistics and Econometrics Humboldt-Universität zu Berlin Berlin‚ Germany September 13‚ 2005 II Declaration of Authorship I hereby confirm that I have authored this master thesis independently and without
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The APT has a number of benefits. First‚ it is not as a restrictive as the CAPM in its requirement about individual portfolios. It is also less restrictive with respect to the information structure it allows. The APT is a world of arbitrageurs and vendors of information. It also allows multiple sources of risk‚ indeed these provide an explanation of what moves stock returns. The benefits also come with drawbacks. The APT demands that investors perceive the risk sources‚ and that they can reasonably
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following required information: 1. The risk-free rate of interest‚ in this case‚ the yield of the ten-year government bond‚ which is 6%. 2. HydroTech’s: a. Market Capitalization (its market value of equity)‚ $100 million. b. CAPM beta‚ 1.2 c. Total book value of debt outstanding‚ $50 million. d. Cash‚ $10 million 3. The cost of debt (using the quoted yields on HydroTech’s outstanding bond issues)‚ which is 7%. With this information in hand‚ you are now
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High product quality required(high responsibility for products) 3. Legal issues Weighted Average Cost of Capital Analysis (WACC): In this case‚ we use WACC as the required rate of return to calculate the company’s net present value. The CAPM theory is being used here to find the cost of equity and yield to maturity to be its cost of debt. Cost Of Equity by Capital Asset
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Question 1 - Bond Valuation Assume the following information for bonds A and B. Both bonds have the same YTM and have semi-annual coupon payments. Bond B is currently selling at par. Face Value Maturity Coupon Rate Bond A 1000 30 yrs 8% Bond B 1000 20 yrs 10% a) What is the price for Bond B (2 pts)? What is the current yield for Bond B (2 pts)? Bond A is selling at a ________(discount /par/
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Nike Inc. Case 1. What is the WACC and why is it important to estimate a firm’s cost of capital? WACC is weighted average cost of capital‚ which is the expected rate of return on average from all the company’s existing debts and securities. It takes into account all different types of financing in the company’s capital structure. The reason it is important to estimate WACC is because it measures what it costs the firm to take on a project based on its current Debt and Equity mix. When the
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methods and issues involved in establishing a portfolio and making changes over time 10-3 Topic Outline Risk Return Applying a Risk-Return Model (Capital Asset Pricing Model - CAPM) 10-4 Risk and Return What is Risk? Sources of Risk How Much Return Do You Need? The Iron Law of Risk and Return (CAPM) To earn higher returns‚ you must take greater risks. There is a strong positive correlation between higher investment return and greater risk. 10-5 What Is Risk?
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cost of equity. It is commonly equated using the capital asset pricing model formula (below)‚ although articles such as Stulz 1995 question the validity of using a local CAPM versus an international CAPM- also considering whether markets are fully integrated or segmented (if fully integrated‚ there would be no need for a local CAPM). Once cost of debt and cost of equity have been determined‚ their blend‚ the weighted-average cost of capital (WACC)‚ can be calculated. This WACC can then be used as
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