Application of capital asset pricing model

Assignment Help Finance Basics

Reference no: EM1332824

1. For each of the scenarios below, explain whether or not it represents a diversifiable or an undiversifiable risk. Please consider the issues from the viewpoint of investors. Explain your reasoning

a. There's a substantial unexpected increase in inflation.
b. There's a major recession in the U.S.
c. A major lawsuit is filed against one large publicly traded corporation.

2. Use the CAPM to answer the following questions:
https://en.wikipedia.org/wiki/Capital_asset_pricing_model

a. Find the Expected Rate of Return on the Market Portfolio given that the Expected Rate of Return on Asset "i" is 12%, the Risk-Free Rate is 4%, and the Beta (b) for Asset "i" is 1.2.

b. Find the Risk-Free Rate given that the Expected Rate of Return on Asset "j" is 9%, the Expected Return on the Market Portfolio is 10%, and the Beta (b) for Asset "j" is 0.8.

c. What do you think the Beta of your portfolio would be if you owned half of all the stocks traded on the major exchanges? Explain.

3. Explain what you think is the main 'message' of the Capital Asset Pricing Model to corporations and what is the main message of the CAPM to investors?

Reference no: EM1332824

Questions Cloud

Show the result of the calculation metric using cstr : require to create 2 textboxes with label one with input of value to be converted English using CDbl and another to display the result of the calculation metric using cstr.

Show legal implications on hr of employment law : From what you have read, do the employment laws affecting the private sector work as they are designed to in the U.S.

Explain e-business failure : Explain e-Business failure and Explain what happened and what would have been done differently

Is there which you can do to hedge your bet : Is there which you can do to hedge your bet. That is, is there some way to ensure that you won't lose all of your money in case the value of the franc plummets.

Application of capital asset pricing model : Describe what you think is the main 'message' of the Capital Asset Pricing Model to corporations and what is the main message of CAPM to investors?

Prepare a plan that will help the hr department : Prepare a plan that will help the HR department accomplish this job growth and Write a report summarizing your plans

Ms access usually suggested as a good candidate : Why is a PC based DBMS like MS Access often suggested as a good candidate to use in story boarding/prototyping the user interface presentation screens and basic database functionality for the new database development (even though MS Access is not ..

Illustrtae what are the primary advantages and disadvantages : Illustrtae what are the primary advantages and disadvantages of acquiring inputs through this means? Give an example that uses this method of procurement.

Explain computer science- e-business : Explain Computer Science- E-Business and Please elaborate on three examples of possible ethical problems when running an e-business

User Account

All Pages