Question: (Q) In this problem, you will apply the CAPM to value the tech stocks of the table below. Compute the covariance matrix. What are the

(Q) In this problem, you will apply the CAPM to value the tech stocks of the table below.

  1. Compute the covariance matrix.
  2. What are the CAPM betas for the 4 tech stocks?
  3. What are the alphas of the 4 tech stocks?
  4. What are the systematic and idiosyncratic variances of each tech stock?

You can assume that the latest risk-free rate is 0.08%.

Correlations
Market Caps (trillion) Price Expected return Volatility Alphabet Amazon Apple Microsoft
Alphabet $1.75 $2,653.64 20.90% 40.60% 1 0.87 0.75 0.92
Amazon $1.49 $2,936.35 24.50% 49.20% 0.87 1 0.81 0.88
Apple $2.59 $158.52 25.40% 35.20% 0.75 0.81 1 0.85
Microsoft $2.14 $285.59 26.60% 39.10% 0.92 0.88 0.85 1
S&P 500 13.80% 26.80% 0.87 0.88 0.91 0.93

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

17) In this problem, you will apply the CAPM to value the tech stocks of the table below. 1. Compute the covariance matrix. 2. What are the CAPM betas for the 4 tech stocks? 3. What are the alphas of...

Q:

Hello. I need to write a three page review for the two articles attached. Each review should include a brief summary that include the major points of the article, as well as a summary of my own...

Q:

Need Urgent Help with Question 3 and Question 9 of the attached document - Question 3 needs only ~400 words (also attaching an article which might be needed to answer question-3) My word count for...

Q:

Need help with part 3 only Part 3 Minimum Variance and Tangent Portfolios Instruction: You have two customers that have different tastes of risk. The first customer is a risk averter who find the way...

Q:

12. Suppose you formed a 1-stock portfolio, then added one randomly-picked stock at a time to the portfolio, continuing until the portfolio contained every publicly traded stock. Draw a ?reasonable?...

Q:

help mi with my questions 21. There are three assets, A, B and C, where A is the market portfolio and C is the risk-free asset. The return on the market has a mean of 12% and a standard deviation of...

Q:

Now use the historical returns data in Table 2-1 to calculate Market, Games, and Outplace?s standard deviations, beta coefficients, correlation coefficients with the market, and R2 values. Discuss...

Q:

Was having difficulty with this practice problem set. Could you please help? Thank you so much! Consider an economy with the following information. Stock Price Today (PC) Expected Dividend (D)...

Q:

This question is based to the stock data that can be obtained from the following link: http://biz.yahoo.com/r/ "Choose Research Tools" and then "Historical Quotes". Obtain monthly stock data for 5...

Q:

This question is based to the stock data that can be obtained from the following link: http://biz.yahoo.com/r/ "Choose Research Tools" and then "Historical Quotes". Obtain monthly stock data for 5...

Q:

Consider the time series y t = 0 + 1 t + x t , where 0 and 1 are regression coefficients. Let v t = y t y t1 . Show that v t is stationary if x t is stationary

Q:

Given the following sample of five observations, develop a scatter diagram, using x as the independent variable and y as the dependent variable, and compute the correlation coefficient. Does the...

Q:

Starbucks recently reported net income of $ 4 , 5 1 8 . 3 million. Its stockholders equity was $ 5 , 4 5 0 . 1 million and $ 1 , 1 6 9 . 5 million at the beginning and end of the fiscal year,...

Q:

Current Attempt in Progress 14 Coronado Company produces golf discs, which it normally sells to retailers for $9 each. The cost of manufacturing 22.000 golf discs is: Materials $9,020 Labour 31.460...