Pricing Model (CAPM) Prof. Alex Shapiro Lecture Notes 9 The Capital Asset Pricing Model (CAPM) I. II. III. IV. V. VI. Readings and Suggested Practice Problems Introduction: from Assumptions to Implications The Market Portfolio Assumptions Underlying the CAPM Portfolio Choice in the CAPM World The Risk-Return Tradeoff for Individual Stocks VII. The CML and SML VIII. “Overpricing”/“Underpricing” and the SML IX. X. Uses of CAPM in Corporate Finance Additional Readings Equilibrium Process
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Report. Dear Sir, Here is the report on “Personal Portfolio Management”. I shall be pleased to thank you for assigning me such an interesting topic. While dealing with the topic, I have gone through different books on portfolio management, local and international research papers, national dailies, annual reports, stock market websites and other world wide webs. It is a great pleasure for me that I have got a practical orientation with portfolio management and the relevant finance theories. Though
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Mean-variance portfolio theory (2.1) Markowitz’s mean-variance formulation (2.2) Two-fund theorem (2.3) Inclusion of the riskfree asset 1 2.1 Markowitz mean-variance formulation Suppose there are N risky assets, whose rates of returns are given by the random variables R1 , · · · , RN , where Rn = Sn(1) − Sn (0) , n = 1, 2, · · · , N. Sn(0) Let w = (w1 · · · wN )T , wn denotes the proportion of wealth invested in asset n, N with n=1 wn = 1. The rate of return of the portfolio is N RP = n=1
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Alex Sharpe’s Portfolio 1. Returns and Risk Estimate and compare the returns and variability (i.e. annual standard deviation over the past five years) of Reynolds and Hasbro with that of the S&P 500 Index. Which stock appears to be riskiest? S&P 500 Annualized Expected Return: 6.8920% S&P 500 SD (Annualized): 12.477% Reynolds Annualized Expected Return: 22.4980% Reynolds SD (Annualized): 32.446% Hasbro Annualized Expected Return: 14.2060% Hasbro SD (Annualized): 28.114% Reynolds
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Portfolio Project Reflection As I undertook to study this course, I was apprehensive and worried about Part 4 concerning the project portfolio. At first I had the perception that common diagnostic coding auditing processes are complicated to understand and to use in the medical profession.Until I begin handling part 4 of this project; it is when I realized that medical coding system is a process of assigning numeral values to medical procedures and diagnoses. It is when that I developed
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also are required to demonstrate and explain the computations of annual return, risk, Sharpe ratio, return, covariance, beta, Treynor Ratio, portfolio standard deviation, and build a graph. THEORETICAL CONCEPTS In this assignment, we used the formula of Variances, Annual, Standard Deviation, Covariance, Correlation Coefficient, Beta, Variance Of Portfolio, Risk, Sharpe Ratio, Treynor Risk 1) Variance Variance measures how far a set of numbers is spread out. The variance measures how far each
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return are strongly correlated. A higher risk usually yields a higher return. Our team observed that within Alex Sharpe’s portfolio, the Reynolds’ fund holds the highest risk (highest standard deviation of 32.45%), as well as the highest return (16.27% in comparison to Hasbro’s return of 11.31%). Although a lower standard deviation (lower risk) is ideal for an investment portfolio, the Reynolds’ fund yields a higher return for the higher associated risk. Furthermore, our team’s data illustrated that
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Preface This paper is written under the assumption that the reader is aware of the basic risk premium evaluation models and theories such as the Modern Portfolio Theory and the Capital Asset Pricing Model. This article explains why there was a need for such evaluation mechanisms and why, in some way shape or form, these models were flawed and hence there was and is a need for a new mechanisms for evaluating risk premiums. Evolution of models to calculate Risk Premiums In the realm of corporate
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WEEK 2 NPV, PBP, IRR, EAC( equivalent annual cash flow) NPV: If NPV>0, accept the project [which are expected to add value to the firm], otherwise don’t bother. Reminders Rule 1: Only cash flow is relevant Cash flow ≠ accounting income •In an income statement, profit is shown as it is earned rather than when the company and its customers get around to paying their bills. •Cash outflows are sorted into two categories: 1) current expenses, deducted when calculating income; and 2)
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Chapter 11 Return and Risk: The Capital Asset Pricing Model (CAPM) Copyright © 2015 by the McGraw-Hill Education (Asia). All rights reserved. 11.1 Individual Securities The characteristics of individual securities that are of interest are the: Expected Return Variance and Standard Deviation Covariance and Correlation (to another security or index) 11-1 11.2 Expected Return, Variance, and Covariance Consider the following two risky asset world. There is a 1/3
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