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# The Capital Asset Pricing Model (CAPM)

### Fund Q: market risk premium, beta, expected return, standard deviation

CAPM, PORTFOLIO RISK, AND RETURN Consider the following information for three stocks, Stocks X, Y, and Z. The returns on the three stocks are positively correlated, but they are not perfectly correlated. (That is, each of the correlation coefficients is between 0 and 1.) Stock Expected Return Standard Deviation Beta X

### Chargers Products: Analyzing Risk and Return

Please answer a-f. Attached is a word document since there is a chart that isn't clear on this attachment. Analyzing Risk and Return Junior Sayou, a financial analyst for Chargers Products, a manufacturer of stadium benches, must evaluate the risk and return of two assets, X and Y. The firm is considering adding these a

### ROR of Apple Inc

The cost of equity capital and the CAPM You are asked by your board of directors to write a report explaining the challenge of estimating or coming with a good 'feel' for the "cost of equity capital" or the rate of return that you feel your company investors require as the minimum rate of return that that expect of require yo

### Encore International Case

Integrative Case 2 Encore International In the world of trendsetting fashion, instinct and marketing savvy are prerequisites to success. Jordan Ellis had both. During 2006, his international casual-wear company, Encore, rocketed to \$300 million in sales after 10 years in business. His fashion line covered the young woman

### What is the estimated beta coefficient of Raytheon?

A. What is the estimated beta coefficient of Raytheon? What does this beta mean in terms of your choice to include Raytheon in your overall portfolio? b. Given the beta of Raytheon, the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market r

### Valuing A Stock Using CAPM

Suppose the risk free rate is 4%. Suppose also that the expected return required by the market for a portfolio with a beta of 1.0 is 9%. Suppose you consider buying a share of stock at a price of \$42. The stock is expected to pay a dividend of \$3 next year and to sell then for \$41. The stock risk has been evaluates at beta of

### Determine Cost of Capital: long term debt, preferred & common stock, retained earnings

Here is the company's balance sheet: Assets: Cash- \$2,000,000 Accts. Receivable- \$28,000,000 Inventories- \$42,000,000 Net Fixed Assets- \$133,000,000 Total Assets- \$205,000,000 Liabilities: Accts. Payable- \$18,000,000 Notes Payable- \$40,000,000 Long-Term Debt- \$60,000,000 Preferred Stock- \$10,0

### Stock Portfolio Risk and Return: beta, CAPM, risk free rate, variance, deviation

See attached file. A portfolio has 75 shares of Stock A that sell for \$72 per share and 105 shares of Stock B that sell for \$42 per share. The weight of A is and the weight of B is . ou own a portfolio that has \$1,700 invested in Stock A and \$1,400 invested in Stock B. If the expected returns on these stocks are 8 per

### Analyze IBM financial data: risk free rate, beta, dividend, PE, EPS, CAPM, CGM

FIN410-0904B-01 Financial Management Details: By walking you through a set of financial data for IBM, this assignment will help you better understand how theoretical stock prices are calculated; and how prices may react to market forces such as risk and interest rates. You will use both the CAPM (Capital Asset Pricing Model)

### Capital Asset Pricing Model (CAPM): described it practical uses and limitations

Breifly describe the capital asset pricing model (CAPM), its practical use, and its limitations. Does not have to be long and drawn out, just understandable.

### Application of the Capital Asset Pricing Model (CAPM)

The Capital Asset Pricing Model 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. A large fire severely damages three major U.S. cities. b. A substantial unexpected rise

### CAPM Equation to Find the Present Cost of Equity for the Company

A company has a Beta of 1.12, the present yield to maturity on U.S. Government bonds maturing in one year is currently about 4.5% annually and an assessment that the market risk premium is 6.5%. Use the CAPM equation to find what is the present cost of equity for the company and what is the meaning of the cost of equity?

### Use the CAPM paridigm to estimate the equity cost of capital

Based on the table below, suppose that Telmex has made its shares tradable internationally via cross-listing on NYSE. Using the CAPM paradigm (p.424), estimate Telmex's equity cost of capital. Discuss the possible effects of international pricing of Telmex shares on the share prices and the firm's investment decisions. In 200-

### Market risk premium under CAPM

Analysts give Proctor & Gamble, the consumer products firm, an equity beta of 0.65. The risk-free rate is 4.0 percent. An analyst calculates an equity cost of capital for the firm of 7.9 percent using the capital asset pricing model (CAPM). What market risk premium is she assuming?

### Asset Pricing Models: real rate of return; beta coefficient for GE; Monte & Market Index

See Attachment. You are given the following long-run annual rates of return for alternative investments: U.S. Gov't T-bills 2.25% Large-cap common stock 7.50% Long-term corporate bonds 4.85% Long-term Gov't bonds 4.35% Small-capitalization common stock 9.50% The annual rate of inflation is 1.25%. W

### glamour stock, good comparable, analysis, asset-based, pricing models,

1. A glamour stock is usually more under-valued than a value stock? (true or false) 2. What are three properties that make for a "good comparable"? 3. In what type of industry could you most justify an asset based valuation approach? Why? 4. Which of the typical multiple is better in your opinion - why? 5. Which of

### Expected Return and CAPM

9. Bill plans to open a do-it-yourself dog-bathing center in a storefront. The bathing equipment will cost \$160,000. Bill expects the after-tax cash inflows to be \$40,000 annually for 7 years, after which he plans to scrap the equipment and retire to the beaches of Jamaica. Assume the required rate of return is 10%. What is the

### The cost of equity

Risk and return, portfolio diversification and the Capital Asset Pricing Model; The cost of equity THE COMPANY USED IS WAL-MART Target and Costco In this section of the Session Long Project you'll estimate the cost of equity or the rate of return that your company's shareholders 'require'. This is an important piece of in

### Dividends

Weyerhaeuser, the forest products producer, traded at \$42 at the beginning of 1996. Beta services typically places its beta at 1.0 with a market risk premium of 6 percent. The risk free rate at the end of 1995 was 5.5 percent. The firm was expected to pay dividends of \$1.60 per share in 1996 and 1997. Use CAPM to calculate the

### Capital Asset Pricing Model: Example

The Hartley Hotel Corporation is planning a major expansion. Hartley is financed 100 percent with equity and intends to maintain this capital structure after the expansion. Hartley's beta is 0.9. The expected market return is 16 percent and the risk-free rate is10 percent. If the expansion is expected to produce an internal rate

### Calculate Expected stock return, required rate of return, beta, portfolio return, CAPM

See attached file. 8- 1 EXPECTED RETURN A stock's returns have the following distribution: Calculate the stock's expected return, standard deviation, and coefficient of variation. 8- 3 REQUIRED RATE OF RETURN Assume that the risk- free rate is 6% and the expected return on the market is 13%. What is the required

### Risk Measurement Techniques

Identify three risk measurement techniques by its use and its application.

### Given the holding-period returns shown here, compute the average returns and the standard deviations for the Zemin Corporation and for the market. If Zemin's beta is 1.54 and the risk-free rate is 8 percent, what would be an appropriate required return for an investor owning Zemin? How does Zemin's historical average return compare with the return you believe to be a fair return, given the firm's systematic risk?

6-10. (Measuring risk and rates of return): a. Given the holding-period returns shown here, compute the average returns and the standard deviations for the Zemin Corporation and for the market. MONTH ZEMIN CORP. MARKET 1 6% 4% 2 3 2 3 -1 1 4 -3 -2 5 5 2 6 0 2 b. If Zemin's beta is 1.54 and the risk-free rate is 8 per

### Net Present Value, Expected Return, Sharpe Ratio etc.

Please show all work. 1. (Chp. 9)If the risk-free rate of return is 2.1% and the expected return on the market is 8.6%, calculate the expected return for Co A with a beta of 1.55 [#5 page 231 Quiz] 2. (Chp. 9)Co. B's return on its portfolio is 10% with a standard deviation of 4. The risk-free rate of interest i

### Study questions for final

1. Under which of the following legal forms of organization, is ownership readily transferable? A) Sole proprietorships. B) Partnerships. C) Limited partnership. D) Corporation. 2. The true owner(s) of the corporation is (are) the ________. A) Board of directors B) Chief executive officer C) Stockholders D) Creditor

### Debt and equity capital differ

How do debt and equity capital differ. What are the key differences between them with respect to ownership rights, claims to income and assets, maturity.

### Stephens Electronics: Calculate cost of equity

Stephens Electronics is considering a change in its target capital structure, which currently consists of 25% debt and 75% equity. The CFO believes the firm should use more debt, but the CEO is reluctant to increase the debt ratio. The risk-free rate, rRF, is 5.0%, the market risk premium, RPM, is 6.0%, and the firm's tax rate

### SunCo Corporation: Prepare the journal entry to record the impairment of the asset at December 31, 2006

Presented below is information related to copyrights owned by SunCo Corporation at December 31, 2006. Cost \$2,700,000 Carrying amount 2,400,000 Expected futu

### Finance: cost of capital, capital budgeting, capital structure, forecasting, working capital

Question 1: (Cost of Capital) You are provided the following information on a company. The total market value is \$40 million. The capital structure, shown here, is considered to be optimal. Accounting Value Market Value Bonds, \$1000 par, 7% coupon, 7% YTM \$10,000,000 \$10,000,00

### Chicago Gear: expected stock returns, beta, required returns under CAPM

The riskless return is currently 6%, and Chicago Gear has estimated the contingent returns given here. a. Calculate the expected returns on the stock market and on Chicago Gear stock. b. What is Chicago Gear's beta? c. What is Chicago Gear's required return according to the CAPM? State of the Marke