1.The company stock name is Amazon

2.=1.15

52-week change for the stock=27.67%

the S&P 500=36.35%

the 6-month rate=0.06%

The formula for the CAPM is expressed as:R_STOCK= R_RF+ ( R_M- R_RF)

Solutions

RIBM= 0.06% + 1.15 ( 36.35% - 0.06% )

0.00069+ 0.418025 - 0.00069

0.0006+ 0.417335= 0.418025

42%

TheRRfor Amazon using CAPMis 42% and the52-week changefor Amazonis 27.67%

3.The 52-week return was less than the required rate of return. This indicates that the security here is overvalued.

The returns from the security might not be able to meet the demands or expectations of the investors.

4.Even though the 52-week return was less than the required return,the investment in Amazon is considerably good.

• The company is the industry leader and has a diversified portfolio of products and services. They consistently outperformed their competitors in the past and recent years.
• The earnings of Amazon are also stable and growing at a decent rate. Amazon's earnings per share delivered a 101% compounded annual growth rate.
• The logistics and transportation of Amazon are very smooth and are beneficial for the growth of the company. They have a strong global presence and infrastructure.
• Apart from providing a platform for sellers and engaging in the e-commerce market, they also invested in technology, robotics, entertainment, and payment service.

References

Amazon.com, Inc. (AMZN) valuation measures & financial statistics. (2021, June 19). Yahoo Finance - Stock Market Live, Quotes, Business & Finance News.https://finance.yahoo.com/quote/AMZN/key-statistics?p=AMZN

Daily treasury yield curve rates. (n.d.). Front page | U.S. Department of the Treasury.https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/textview.aspx?data=yield

This week we are going to use the math for computing a weighted average and apply it to the investment model we learned about last week, the CAPM.Using a weighted average, you can manipulate the expected risk and return of a portfolio of stocks to match your personal risk tolerance.If you have a stock that has a relatively low Beta, you can use it to reduce the overall risk of a portfolio, even if the returns themselves are not super fantastic. For example, if you were to pair Ford with another higher beta stock, Ford's low beta would help to off-set the risk of the other stock. Here is how to compute the beta and expected return of a portfolio...

% of portfolio

Beta

Contribution to portfolio Beta

Expected Return (CAPM)

Contribution to Portfolio Return

Ford

50%

1.03

.50 x 1.03 = 0.515

9.7%

.50 x .097 = .0485 = 4.85%

riskier stock

50%

2.2

.50 x 2.2 = 1.1

15.3%

.50 x .153 = .0765 = 7.65%

Portfolio Beta

.0.515 + 1.1 = 1.6

Portfolio Return

4.85% + 7.65% = 12.5%

As you can see, the addition of Ford to a portfolio containing a riskier stock decreases the overall risk of the investments and still provides a respectable return of 12.5%.

Requirements

Visit the following website and take theInvestment Risk Tolerance Quiz.

Make a note of your results.You will use this information for this activity.

• Revisit your post from last week on the CAPM.Review the Beta and the Expected return for the stock you chose.Evaluate how risky this stock seems in relation to your risk tolerance profile.In other words, if you are a conservative investor, but the stock you selected last week had a very high Beta, then you will want to reduce the risk of owning this stock by pairing it with a low Beta stock.
• Once you have decided whether or not you need to increase or decrease risk, go back to YahooFinance and research some possible stocks to add to your portfolio.Identify 1 or 2 stocks that you think would bring the overall risk of your portfolio within a comfortable range.Use thisFINC 331 Wk 6 Discussion Table.xlsxto help you compute the portfolio weighted averages.
• Place the stock you used last week in the row marked "stock #1".
• Enter the information for stocks #2, and #3 if using a third.
• Remember to adjust the portfolio weightings to reflect the number of stocks you have chosen.If you have two stocks, then the weighting is 50% each.If you have three, then it is 33.34% each.
• Compute the Portfolio Beta and Portfolio Expected return.Use the example above to help you.
• Tell us what you have learned about your risk tolerance profile and the stocks you selected.Be sure to copy and paste your Table into your post so that we can see your calculations

Answer rating: 100% (QA)

SOLUTION First let me share my results from the Investment Risk Tolerance Quiz My risk tolerance pro... View the full answer