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Copy of SUO_FIN2030_W6_Capital_Asset

Copy of SUO_FIN2030_W6_Capital_Asset - 0.22 E 254.24 1.43...

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Capital Asset Pricing Model Examples Beta CAPM=risk free rate of return+Beta*market risk premium Let's say we have a stock with the following information Stock Price \$55.00 Dividend \$1.60 Beta 1.10 We also know the following market information Market Risk Premium 5.58% This is actually (Rm-Rf) NOT ju Risk Free Rate of Return 2.10% Sometimes you will have a market rate, in which case you need to subtract a RF rate for Rm-Rf. The market ris 8.24% This is the expected return on  Let's say I have a portfolio of stocks Stock Price Beta A  \$25.27  0.68 B  \$25.12  1.01 C  \$31.61  1.39 D  \$477.50  1.09 E  \$254.24  1.43 What would be the beta of an equally weighted portfolio of these stocks?   Stock Price Beta weights A 25.27 0.68 0.2 0.14 B 25.12 1.01 0.2 0.2 C 31.61 1.39 0.2 0.28 D 477.5 1.09 0.2

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Unformatted text preview: 0.22 E 254.24 1.43 0.2 0.29 100% 1.12 Using the CAPM, here are the expected returns of these securities if I have the same market risk Stock Beta Expected return using CAPM A 0.68 5.89% B 1.01 7.74% C 1.39 9.86% D 1.09 8.18% E 1.43 10.08% I can also find the expected return on the portfolio CAPM=risk free rate of return+Beta*market risk premium Stock Expected rweights A 5.89% 20% 0.0118 B 7.74% 20% 0.0155 C 9.86% 20% 0.0197 D 8.18% 20% 0.0164 E 10.08% 20% 0.0202 8.35% Expected r just the return on the market. sk premium is already subtracted. the stock, using the CAPM is the beta of this portfolio. k premium and risk free rate as above. return of the portfolio...
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