Reference no: EM133001816

It would be better if you can use excel to answer calculation questions.

1. What effect will diversifying your portfolio have on your returns and your level of risk?

2. What are differences between Systematic and Unsystematic Risk?

3. Use the CAPM to compute the reasonable return for each of these fashion related stocks. Use 0.5% as the risk free rate of return use 5.5% as the market rate of return. Retrieve beta from Yahoo Finance at https://finance.yahoo.com/ or use Google. (please indicate which website you retrieved Beta from).

a. PVH Corp (PVH)

b. L Brands (LB)

c. Guess? (GES)

4. Use the CAPM to compute the reasonable return for each of these stocks. Use risk free rate of return and the market rate of return given in #1, above.

d. Coca Cola (KO)

e. Walmart (WMT)

f. McDonald's (MCD)

5. Why do the returns you computed above represent

a. a reasonable (or fair) return for each stock?

b. The required return for each stock?

6. What do you notice about the pattern or trend of returns for the fashion companies (in #1) as compare to those of the non-fashion companies (in #2)? Why does that occur? Does that make sense in terms of the line of business of the companies in the respective groups?