Help me with part E please. Thank you so much a) Discuss the main assumptions of the Capital Asset Pricing Model (CAPM). (b) Write the equation of the Security Market Line (SML). Compute and draw the SML when the expected return of the NASDAQ index (market portfolio) is 17% and the return to the risk-free asset is 7%. (c) Given the SML in (b), compute the beta and the expected return of the new share Facebook assuming the volatility of the NASDAQ index (market portfolio) is 23.86% and its covariance with the share is 0.0655. (d) Facebook pays a dividend of 5 GBP and the growth of dividends is equal to 4% for the first two years and then rise to 6%. Assuming constant cost of capital as computed in point (c), estimate the price of the Facebook share. (e) Consider investing 20% of your wealth in the Facebook share with beta as in, What is the proportion you need to allocate to the Apple share with beta 1.8 in order to replicate the market portfolio?
Help me with part E please. Thank you so much
a) Discuss the main assumptions of the
(b) Write the equation of the Security Market Line (SML). Compute and draw the
SML when the expected return of the NASDAQ index (market portfolio) is
17% and the return to the risk-free asset is 7%.
(c) Given the SML in (b), compute the beta and the expected return of the new
share Facebook assuming the volatility of the NASDAQ index (market portfolio) is 23.86% and its covariance with the share is 0.0655.
(d) Facebook pays a dividend of 5 GBP and the growth of dividends is equal to 4%
for the first two years and then rise to 6%. Assuming constant cost of capital
as computed in point
(c), estimate the price of the Facebook share.
(e) Consider investing 20% of your wealth in the Facebook share with beta as in, What is the proportion you need to allocate to the Apple share with beta
1.8 in order to replicate the market portfolio?
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