Reference no: EM131302821
THE CAPITAL ASSET PRICING MODEL
Assignment Overview
I. 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.
1. There's a substantial unexpected increase in inflation.
2. There's a major recession in the U.S.
3. A major lawsuit is filed against one large publicly traded corporation.
II. Use the CAPM to answer the following questions:
1. 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.
2. 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.
3. What do you think the Beta (β) of your portfolio would be if you owned half of all the stocks traded on the major exchanges? Explain.
III. In one page 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?
Assignment Expectations
The Case report should be a two-page report. Please show your work for quantitative questions.
|
Which output performance standards
: Analyze the control systems used by a real organization such as a department store, restaurant, hospital, police department, or small business. Your objective is to uncover all the different ways in which managers monitor and evaluate the perform..
|
|
What is the future value of his investment cash flows
: Chuck Brown will receive from his investment cash flows of $3,155, $3,500, and $3,850 at the end of years 1, 2 and 3 respectively. If he can earn 7.5 percent on any investment that he makes, what is the future value of his investment cash flows at th..
|
|
Two salesmen are competing for your business
: You would like to purchase a new car and two salesmen are competing for your business. The list price of the car you want to buy is $10,000. With a discount rate of 4% compounded annually, what is the value today of purchasing the car if you take the..
|
|
Write about the four primary sources of law in the us
: Write about the Four Primary Sources of Law in the US.Throughout time, criminologists began to ask complex social questions about the nature of crime and criminals. Many of the queries centered around the behavior of criminals, rather than on the c..
|
|
Find risk-free rate given that the expected rate of return
: 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.
|
|
Taxes are automatically deducted from each paycheck
: Vincent Lecavlier, a Montreal native, played for the Tampa Bay Lightning. He had a ten year contract worth $100 million ($10 million per year). He dreamed of playing for the Montreal Canadians and 4 years into his contract with Tampa Bay, he was trad..
|
|
Evolution of the internet and web applications
: Using what you've learned about the evolution of the Internet and Web Applications, read the article, "E-health and Web 2.0: The doctor will see tweet you now" and answer the following the questions:
|
|
What factors shift the short run aggregate supply curve
: What is meant by the term price stickiness in the new Keynesian view? What explains price stickiness?- What factors shift the short-run aggregate supply curve?
|
|
Describe the civil law and criminal law
: Write on the important differences between civil law and criminal law
|