Use Excel to perform all calculations

Answer:

• What effect will diversify your portfolio have on your returns and your level of risk?
• What are the differences between Systematic and Unsystematic Risk?

Use the CAPM to compute the reasonable return for each of these fashion-related stocks.

Use 0.5% as the risk-free rate of return and use 6.5% as the market rate of return. Retrieve beta from Yahoo Finance at http://finance.yahoo.com/or use Google

1. PVH Corp (PVH)
2. Steve Madden (SHOO)
3. Guess? (GES)

Use the CAPM to compute the reasonable return for each of these stocks. Use risk-free rate of return and the market rate of return given in #1, above.

1. Coca Cola (KO)
2. Walmart (WMT)
3. McDonald's (MCD)

Why do the returns you computed above represent

1. a reasonable (or fair) return for each stock?
2. The required return for each stock?

What do you notice about the pattern or trend of returns for the fashion companies (in #1) as compared to those of the non-fashion companies (in #2)? Why does that occur? Does that make sense in terms of the line of business of the companies in the respective groups?