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The Capital Asset Pricing Model (CAPM)

4 Problems to do with Finance CAPM / Beta / Return and standard deviations

(See attached file for full problem description) --- 1.1 Solve Problems 10.3 on page 289, RWJ Chapter 10 Mr Henry can invest in Highbull stock and Slowbear stock. His projection of the returns on these two stocks is as follows: State of Probability of Return on Return on Economy State Occurring Highbull Stock

Calculating the Theoretical Stock Price of IBM

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) and the Constant Growth Model (CGM) to arrive at

Confused on CAPM

I am confused on where to find the correct numbers for the equation Please help. The formula to get the CAPM is : ks = k r f + (k m - kr f) x β This was the problem 1.Find an estimate of the risk-free rate of interest, krf. To obtain this value, go to Market Data [

WACC for Performance Food Group

I need some help figuring out the steps to come up with the WACC for Performance Food Group (Ticker PFGC) I've attached a spreadsheet that I used to get Beta for Nike and the WACC spreadsheet. I need help with the steps... Thanks

Multiple choice questions / T or F - capital structure

Please state your why you selected the answer so I can better understand. 1. A statistical measure of the degree of correlation between two quantitative variables is called: j. correlation k. covariance l. correlation coefficient m. beta 2. Which of the following best illustrates a formal model of the relatio

Beta Coefficient

In the capital asset pricing model, the beta coefficient is a measure of ______ risk and an index of the degree of the movement of an asset's return in respnse to a change in ______ diverifiable; the prime rate, diverifiable; the bond index rate, nondiverifiable; the Treasury Bill rate, or nondiverifiable; the market retur

Risk and cost

Could you please check the anwser below if it is correct, if not please help me fix the errors for number 12. 12. a. The incentive-based compensation plan for managers seems conceptually flawed. The growth rates, risks, industry practices and market conditions in the industry that each division faces is different. The valu

CAPM, Expected Return, Risk and Return

CAPM and EXPECTED RETURN: The following table shows betas for several companies. How do I calculate each stock's expected rate of return using the CAPM. Assuming the risk-free rate of interest is 5 percent. Using a 9 percent risk premium for the market portfolio. Company BETA Cisco 2.03 CitiGr

Assume the following variance-covariance matrix. What is the optimal weight of the two assets? Write the equation of the capital market line. Create a portfolio with 20% return. Describe that portfolio in terms of the holdings of stock A, B and the risk free asset.

Please disregard the short sale of stock. Instead, consider that you have purchased 100 shares of stock A. Assume the following variance-covariance matrix: Stock A B E(r) A 0.09 12% B 0.20 0.25 18% There is unlimited borrowing and lending at the risk

Stock X's beta coefficient

You are given the following data: HISTORICAL RATES OF RETURN YEAR NYSE Stock X 1 (26.5%) (14.0%) 2 37.2 23.0 3 23.8 17.5 4 (7.2) 2.0 5 6.6 8.1 6 20.5 19.4 7 30.6 18.2 a. Use a spreadsheet (or calculator with a linear regression function) to determine stock X's beta coefficient. b. Determine the arithmetic a

Suppose you are given the following information

Suppose you are given the following information. The beta of company i, b(i), is 1.1, the risk free rate, r(rf), is 7 percent, and the expected market premium, r(m) - r(rf), is 6.5 percent. (Assume that a(i) = 0.0) a. Use the Security Market Line (SML) or CAPM to find the required return for this company. b. Because your c

Free Cash Flow

I am posted these as they rely on each other and the credits have been increased accordingly. Please show all work, thanks 1. Forecast the Free Cash Flow for the next three FY under the assumption that sales will increase by 5% a year and that Staples will maintain all current ratios (depreciations in FY ending on January 31

Significance of R Square Statistics in CAPM

Capital Asset Pricing Model (CAPM) is used to calculate the required return from a stock. To calculate the required return from ABC stock, a regression was run between the S&P Index daily retun over risk free rate and ABC daily returns over risk free rate on the historical data for 500 days. The R square value of the regression

Capital Asset Pricing Model (CAPM): expected return on Kellogg common equity

1. Use the Capital Asset Pricing Model (CAPM) to find the expected return on Kellogg common equity. Use monthly price data for the last ten years (ending June 2004). The following steps will guide you through this problem. A. Using the FRED database, ( calculate the average return on 10-y

What will be the new stock price

Ceejay Corporation's stock is currently selling at an equilibrium price of $30 per share. The firm has been experiencing a 6 percent annual growth rate. Last year's earnings per share, Eo, were $4.00 and the dividend payout ratio is 40%. The risk-free rate is 8%, and the market risk premium is 5%. If the market risk (beta) incre

Calculate the following asset activity ratios for the end of 1999. 1. Average Collection Period , 2. Inventory Turnover 3. Total Asset Turnover . After you calculate the ratios, please tell me which ratio is the most important or critical to monitor as regards to ABC Fitness, Please explain why.

ABC Fitness Company 000's INCOME STATEMENT Dec. 99 Sales 1968.016 Cost of Goods Sold 1466.733 Gross Profit 501.283 Selling and Ad. Expenses 361.402 Depreciation 35.7 Operating Income (EBIT) 104.181 Interest Expense 34.482 Other Expense 14.124 EBT 83.823 Taxes 24.701 Net Income 59.122 BALANCE SHEET 000's Assets C

Calculate the Required Return of the Bank Ltd. and Trade Ltd. Calculate the beta for this company. What is required return? Calculate the portfolio's standard deviation? How can you obtain 17 percent portfolio return by investing exclusively in Trade Ltd? What would be the percentage change in the return on the stock, if the return on an average stock increased by 40 percent while the risk-free rate remained unchanged?

1. The shares of the following three companies have been included in the portfolio: Required Return in Accordance with Systematic Risk Standard Deviation of Returns Beta Bank Ltd. ? 20 1.2 Trade Ltd. ? 30 0.8 ALD Ltd. ? 25 ? Market Portfolio 12 16 ? Risk free 5 0 - a) Calculate the Required Return of the Bank Ltd. an

2-stage Dividend Discount Model is shown.

Using 2-stage DDM and CAPM to value stocks: Beta of company: 1.15 Market price: $30 Intrinsic value: ? Risk-free rate 4.50% Expected market return: 14.5% EPS and dividend growth rates for first 3 years: 12% per year EPS and dividend growth rates thereafter: 9% per year Estimate the intrinsic value oif the compa

Stock Valuation Methods

Questions: 1.- How should Jonathan describe the rationale of the dividend discount model (DDM) and demonstrate its use in calculating the justifiable price of common stock? 2.- Being a researcher, Dwayne asked Jonathan a key question, "How did you estimate the growth rates used in applying the model?" Using the data givi

APT and CAPM, Arbitrage portfolio , Factor sensitivity

1) In what significant does the APT differ from CAPM ? 2) Why would an investor wish to form an arbitrage portfolio ? 3) What three conditions define an arbitrage portfolio ? 4. Assuming a one-factor model, consider a portfolio composed of three securities with the following factor sensitivities: Security ---

12 Multiple choice questions on portfolio of stocks, beta of stocks, beta of portfolio, CAPM, market rate, market risk premium , diversified portfolio , market risk , Security Market Line, unsystematic risk, default-free rate, expected inflation rate, etc.

1 In a portfolio of three different stocks, which of the following could not be true? a. The riskiness of the portfolio is less than the riskiness of each of the stocks if they were held in isola-tion. b. The riskiness of the portfolio is greater than the riskiness of one or two of the stocks. c. The beta of the portfolio

Analysis CAPM model, Beta and Expected Return on Shares

What would you expect the effect to be of the following changes on the market price of a company's shares, all other things being the same? Provide an explanation of your expectation. a. Investors demand a higher required rate of return on shares in general b. The covariance between the company's rate of return and that for