CAPM model, compare standard deviation with expected return
Is the following statement True, False, or Ambiguous? Provide a short justification for your
answer (you are evaluated on the justification).
"In the CAPM model, since investors are compensated for holding risk, two securities with the same standard deviation should have the same expected return."
Solution Preview
False. CAPM is applicable when we are picking securities for building portfolio. It considers Beta as ...
... Step 3: Calculate required rate of return using CAPM and comparing it with expected return. ...CAPM (Capital Asset Pricing Model) equation is: r A= rf ...
... We first calculate required returns using CAPM and then compare forecasted return with the required ...CAPM (Capital Asset Pricing Model) equation is: r A ...
...CAPM (Capital Asset Pricing Model) equation is: r A= rf ... c. How does the ABCs historical return compare with the return... Calculates required return using CAPM. ...
... risk, of a stock in comparison to that ... necessarily means that it will have higher standard deviation. ... can be determined by Capital Asset Pricing Model (CAPM). ...
...expected return on equity using the DCF model: rS = D1 ... Rs calculation in CAPM method is based on beta, which ... ing in comparison to the amount of return he can ...
... The concepts involved are CAPM and Capital Market ... Capital Asset Pricing Model and Portfolio Return formula. ... Then the manager would compare the expected return...
... C. Capital Asset Pricing Model (CAPM); Capital Market Line (CML ... The Capital Asset Pricing Model highlights how both ... beta and is calculated by comparing both the ...
... What is the required rate of return using the CAPM model? ... To choose we should compare the post tax return... 7%=11.4% b. What is the standard deviation of returns...
...CAPM (Capital Asset Pricing Model) equation is: r A ... Thus if we compare expected returns of assets X and Y (calculated in part a above) with the required ...
...model with fundamental risk adjustment and compare them with ... of benchmark models (residual income model with risk-adjusted cost of equity using CAPM or the ...
