A4 2a The stocks on ABC Company and XYZ Company have the following returns over the last five years. Year ABC returns XYZ returns 1 –0.2 0.2 2 –0.1 0.1 3 0.5 –0.1 4 0.3 0.05 5 0.1 0.08 a. Calculate the average return on ABC.
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.
A4 2a
The stocks on ABC Company and XYZ Company have the following returns over the last five years.
|
Year |
ABC returns |
XYZ returns |
|
1 |
–0.2 |
0.2 |
|
2 |
–0.1 |
0.1 |
|
3 |
0.5 |
–0.1 |
|
4 |
0.3 |
0.05 |
|
5 |
0.1 |
0.08 |
a. Calculate the average return on ABC.
Step by step
Solved in 3 steps with 2 images
