a. What is the divisor for the price weighted index in year 2?2.69 (sample answer: 2.55) b. What is the price weighted index at t=1? 64 (sample answer: 156.45) c. What is the price weighted index at t=2? 70.63(1sample answer: 56.45)
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.
The EV Index is a price weighted stock index based on the 3 largest electric vehicle manufacturers in the nation. Consider these stocks in the following table. Pt represents price at time t, and Qt represents shares outstanding at time t. (Please pay close attention to stock split)
|
|
P0 |
Q0 |
P1 |
Q1 |
P2 |
Q2 |
|
A |
80 |
200 |
85 |
200 |
90 |
200 |
|
B |
60 |
300 |
70 |
300 |
35 |
600 |
|
C |
65 |
200 |
67 |
200 |
70 |
200 |
a. What is the divisor for the price weighted index in year 2?2.69 (sample answer: 2.55)
b. What is the price weighted index at t=1? 64 (sample answer: 156.45)
c. What is the price weighted index at t=2? 70.63(1sample answer: 56.45)
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