a. Estimate the Portfolio Beta. (Remember you must get the weights first) •MXA b. Assume that the Risk-Free return is 6% and the Expected Market Return is 11%. Estimate the CAPM returns for each stock. Find. out if the expected return of each asset is overpriced.. underpriced, or fair value. Explain your results. CAPM Formula E(R)=R-[E(R)-R.] R₁-6% E(R)-11%
a. Estimate the Portfolio Beta. (Remember you must get the weights first) •MXA b. Assume that the Risk-Free return is 6% and the Expected Market Return is 11%. Estimate the CAPM returns for each stock. Find. out if the expected return of each asset is overpriced.. underpriced, or fair value. Explain your results. CAPM Formula E(R)=R-[E(R)-R.] R₁-6% E(R)-11%
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
![a. Estimate the Portfolio Beta. (Remember you must get the
weights first)
B₁ -mx Bi
ΣΧΑ
b. Assume that the Risk-Free return is 6% and the Expected Market
Return is 11%. Estimate the CAPM returns for each stock. Find
out if the expected return of each asset is overpriced.
underpriced, or fair value. Explain your results.
CAPM Formula
E(R)=R-[E(R)-R₁] B
R,=6%
E(R)=11%](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F95e704fe-78e6-442e-9331-9047694f7516%2F3aed5e3a-6f7c-49b2-b248-49f5d76f2fa6%2F459a4rj_processed.png&w=3840&q=75)
Transcribed Image Text:a. Estimate the Portfolio Beta. (Remember you must get the
weights first)
B₁ -mx Bi
ΣΧΑ
b. Assume that the Risk-Free return is 6% and the Expected Market
Return is 11%. Estimate the CAPM returns for each stock. Find
out if the expected return of each asset is overpriced.
underpriced, or fair value. Explain your results.
CAPM Formula
E(R)=R-[E(R)-R₁] B
R,=6%
E(R)=11%
Transcribed Image Text:7. You will invest in four stocks with the following individual Betas and
Expected returns:
Tesla
Amaz
$1,000 0.8
$3,500 0.9
$4,350 1.5
0.12
0.8
Apple $1,450 S 0.087
Bet E(Retur
on
Googl
0.085
0.09
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