Scribd
Upload
30 views

CAPM Recap Exercises 2023

The document provides a recap of exercises related to the Capital Asset Pricing Model (CAPM). It includes questions about calculating alpha and plotting stocks on a security market line graph using given expected returns, betas, and market/risk-free rates. It also asks the reader to calculate required returns for a project using CAPM, determine if a project should be accepted, and compute alphas and betas for stocks in an Excel file to analyze a diversified portfolio.

Uploaded by

Mirela Kafalieva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
30 views

CAPM Recap Exercises 2023

The document provides a recap of exercises related to the Capital Asset Pricing Model (CAPM). It includes questions about calculating alpha and plotting stocks on a security market line graph using given expected returns, betas, and market/risk-free rates. It also asks the reader to calculate required returns for a project using CAPM, determine if a project should be accepted, and compute alphas and betas for stocks in an Excel file to analyze a diversified portfolio.

Uploaded by

Mirela Kafalieva
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

CAPM: Recap exercises.

• Stock A has an expected return of 4.2% and a risk of β = 0.8, while stock B has
an expected return of 8% and a risk of β = 1.25. The expected return on the
market is 5% and the risk-free rate is 1%.

– What is the alpha of each stock? Plot the SML and each stock’s risk-return
point on one graph. Show the alphas graphically.

• The risk-free rate is 1% and the expected return on the market portfolio is 7%.
A firm considers a project that is expected to have a beta of 0.9.

– What is the required rate of return on the project?


– If the expected IRR of the project is 7%, should it be accepted?

• The excel file ”Data stocks” contains data on the risk-free rate, the market
portfolio and on four stocks (Bank of America, Apple, Amazon, and Nike):

– Compute alpha and beta values for the four stocks.


– What is the beta value of a portfolio that invests 25% in each stock?

• Solve the following end of chapter problems from chap. 9: problem 3 and 10-15.

You might also like