FAO: DIRECTORS‚ NATURALLY FRESH PLC CONTENTS Page(s) 1. Introduction 3 2. Required Rate of Return on Equity 3 3. Beta 3 4. Capital Asset Pricing Model 4 5.1 Limitations of CAPM 4 5.2 The APT Model 4 5.3 The Three-Factor Model 4 5.4 Required Rate of Return using APT or Three-Factor 5 Model 5. Bonds 5 6.5 How bond prices are determined 5 6.6 The Rate
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The purpose of this QCS is to help you review the material on tests of the CAPM and other multifactor models and to illustrate the frequently used two-pass regression approach to testing asset pricing models such as the CAPM and other multi-factor models. As you have seen in the lectures the procedure involves running two regressions. In the first step a time-series regression to calculate factor loadings or betas and in the second step a cross-sectional regression of returns on loadings. This QCS
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Model…………………………………………. 6 1. Advantages of CAPM…………………………………………………………………...6
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Pricing Model (CAPM) and Gordon’s Growth Model. The results of the estimation indicate that the dividend payments will continuous increasing in the future‚ the return on the company’s assets is reasonable and its share price is expected to rise. In addition‚ recommendations associated with the investment decision will be provided to the public investors regarding to the risks in the market by comparing with companies within the same industry. However‚ there are still a number of limitations of the report
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Strategies QUESTION 1 a) Distinguish between systematic and unsystematic risk. as the only relevant risk and why? b) In the context of the Capital Asset Pricing Model how would you define beta? How are betas determined and where can they be obtained? limitations of betas? c) What information does beta give to a financial manager? What are the Which is often regarded QUESTION 2 a) What is the time value of money? flows? b) What factors need to be taken into account when choosing an appropriate discount
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term debt‚ because short term debt is considered as part of working capital. - Error in value of equity JC used the book value of $3‚494.50. We should use market value (current stock)‚ which is more accurate. - Error in CAPM Calculations JC considered 20-year US Treasury bonds as risk free‚ which is not consistent with the company’s cash flow duration
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Calculating covariance Case study Calculating systematic and idiosyncratic risks Investment strategies Required return Reward-to-risk ratio Today 3 Asset pricing models: what and why The Capital Asset Pricing Model (CAPM) Assumptions The claim Implications The economic mechanism The reality check Applications Extensions Asset Pricing 4 Central issue: what is the “fair” or “required” return of a risky asset? Sarah Wolfe of BMC Macro
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market line (CML). A line used in the capital asset pricing model to illustrate the rates of return for efficient portfolios depending on the risk-free rate of return and the level of risk (standard deviation) for a particular portfolio. The CAPM is a model for pricing an individual security or a portfolio expected return = risk-free rate + portfolio beta* (the difference between the expected return on the market as a whole and the risk-free rate). Efficient frontier: Efficient frontier
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analytical uses to which financial statement analysis can be put. 2. What are the sources of financial information? 3. Who are the users of financial statements? 4. What are the objectives of financial statements? 5. What are the limitations of financial statement analysis? 6. Discuss the need for comparative analysis. 7. Identify the tools of financial statement analysis. 8. Explain and apply the horizontal analysis. 9. Identify and compute ratios used in applying
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Critically evaluate the use of “Beta” and CAPM by a fund manager to select the shares to be purchased. Introduction. In financial sector‚ a fundamental question for any fund manager is how to estimate correctly their equity investment. The Capital Asset Pricing Model (CAPM) and Beta can be used to provide comprehensible answer for this question. According to the earlier study of Markowitz (1952)‚ Sharp (1964)‚ Lintner (1965) and Mossin (1966) have developed CAPM as a key portfolio management model that
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