The following information relates to five stocks listed in five different sectors at the Nairobi Securities Exchange .The return on treasury bills is 8% and the average return in the market has been found to be 13%. Estimated Return(%) Beta Williamson tea 12 0.7 Equity Bank 8.2 1 Home Afrika 20 1.2 Bamburi Cement 1.4 Nation Media Group 10 -0.4

Q: What is CML? a. The CAL defined by the market portfolio. b. All of them. C. The steepest capital…

A: The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts the relationship between…

Q: According to the Capital Asset Pricing Model, the expected return on a risky asset depends on three…

A: Capital Asset pricing Model is used to determine the cost or expected rate of return of a stock. It…

Q: Explain an example of Return on equity.

A: Return on equity (ROE) is a measure of financial performance calculated by dividing net income by…

Q: The expected return on a stock is called the __ from the investor's perspective, and the __ from the…

A: The expected return for the stock is an important concept. To calculate the expected return for the…

Q: This method evaluates the return of an investment by dividing the annual average income by the…

A: By dividing the annual average income by the average investment, return on investment is calculated.…

Q: he best answer with respect to a stock's "alpha"? (In a CAPM world) Group of answer choices The…

A: Alpha of the stock or portfolio is risk adjusted performance given by the portfolio and how much…

Q: Discuss the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Model (APM) of Roll and…

A: Two pricing models namely CAPM and APM have to be discussed and differentiated.

Q: how the cost of capital serves as a screening tool when dealing with the net present value method…

A: Answer with explanation are as follows. cost of capital - cost of capital is a expected rate of…

Q: An underpriced stock provides an expected return which is _______________ the appropriate required…

A: In Assets pricing model the gives the required rate based on risk involved in the stock and stocks…

Q: What does the capital asset pricing model (CAPM) calculate?   a. The expected rate of return on…

A: Capital Asset Pricing Model (CAPM) is a financial model used to determine expected return on an…

Q: Assets are priced such that _____________________ increase with the riskiness of future payoffs. A)…

A: Solution:- Payoff means the amount which is receivable on maturity.

Q: Explain the Weighted Average Coupon?

A: Weighted average coupon (WAC): It is a proportion of the rate of return for a pool of home loans…

Q: Discuss the main assumptions of the Capital Asset Pricing Model (CAPM).

A: The Capital Asset Pricing Model (CAPM) is a widely used financial model that calculates the expected…

Q: In the Discounted Cash Flow Model (aka. Dividend Valuation Model) for cost of equity, if an asset…

A: In dividnd discount model , cost of equity is present value of all dividend income and change in…

Q: Explain realized rate of return on stock

A: Realized Rate of Return on stock gives you the percentage return on holding the stock for a certain…

Q: The capital asset pricing model expresses the cost of equity as a function of a return on riskless…

A: The term capital structure refers to the structure of debt and equity financing in the company. A…

Q: Explain how to use the free cash flow valuation model to find the price per share of common equity

A: Free cash flow to the firm is the cash flow available to the company’s suppliers of capital after…

Q: The most popular method that firms use to calculate the cost of equity is ________.  Group of answer…

A: The question is based on calculation of cost of equity. Cost of Equity for a firm is the expected…

Q: The values ​​of the future net incomes discounted by the cost of capital are called question Select…

A: Future value/future cash flow discounted by the COC gives Present value/ PV of cash flow.

Q: According to the single index model, the factor that drives the returns of all assets is: Money.…

A: Single index model is a mathematical equation which shows the relation between stock's return and…

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.