If Treasury bills yield 10 percent, and Alpha Company's expected return for next year is 18...
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If Treasury bills yield 10 percent, and Alpha Company's expected return for next year is 18 percent and its beta is 2, what is the market's expected return for next year? Assume the Capital Asset Pricing Model (CAPM) applies and everything is in equilibrium. (3 mks) (b) Assuming the CAPM applies, if the market's expected return is 13 percent, the risk free rate is 8 percent, and stock A's required rate of return is 16 percent, what is the stock's beta coefficient? (3 mks) (c) During a 5-year period, the relevant results for the aggregate market are that the risk-free rate (Rf) is 8 percent and the return on market (Rm) is 14 percent. For that period, the results of four portfolio managers are as follows: Portfolio Manager I. II. III. IV. A B C D Average Return (%) 13 14 17 13 Beta 0.8 1.05 1.25 0.90 Calculate the expected rate of return for each portfolio manager and compare the average returns with the expected returns(8 mks) Based upon your calculations, select the manager with the best performance. (2 mks) What critical assumptions in the Capital Asset Pricing Model (CAPM)? (6 mks) Explain the advantages and disadvantages of the Capital Asset Pricing Model (CAPM. (8 mks) I If Treasury bills yield 10 percent, and Alpha Company's expected return for next year is 18 percent and its beta is 2, what is the market's expected return for next year? Assume the Capital Asset Pricing Model (CAPM) applies and everything is in equilibrium. (3 mks) (b) Assuming the CAPM applies, if the market's expected return is 13 percent, the risk free rate is 8 percent, and stock A's required rate of return is 16 percent, what is the stock's beta coefficient? (3 mks) (c) During a 5-year period, the relevant results for the aggregate market are that the risk-free rate (Rf) is 8 percent and the return on market (Rm) is 14 percent. For that period, the results of four portfolio managers are as follows: Portfolio Manager I. II. III. IV. A B C D Average Return (%) 13 14 17 13 Beta 0.8 1.05 1.25 0.90 Calculate the expected rate of return for each portfolio manager and compare the average returns with the expected returns(8 mks) Based upon your calculations, select the manager with the best performance. (2 mks) What critical assumptions in the Capital Asset Pricing Model (CAPM)? (6 mks) Explain the advantages and disadvantages of the Capital Asset Pricing Model (CAPM. (8 mks) I
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Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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