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    Capm Problems

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    Padyala Sriram
    The document discusses two problems related to the capital asset pricing model (CAPM). Problem I calculates the expected return and standard deviation for two individual companies' returns in different market states. Problem II does the same for two other companies and then calculates the expected return and risk of a portfolio investing half in each company. The problems demonstrate how to apply CAPM concepts to analyze the risk and return of individual assets and a combined portfolio.

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    Capm Problems

    Uploaded by

    Padyala Sriram
    193 views1 page
    The document discusses two problems related to the capital asset pricing model (CAPM). Problem I calculates the expected return and standard deviation for two individual companies' returns in different market states. Problem II does the same for two other companies and then calculates the expected return and risk of a portfolio investing half in each company. The problems demonstrate how to apply CAPM concepts to analyze the risk and return of individual assets and a combined portfolio.

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    CAPM PROBLEMS

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    The document discusses two problems related to the capital asset pricing model (CAPM). Problem I calculates the expected return and standard deviation for two individual companies' returns in different market states. Problem II does the same for two other companies and then calculates the expected return and risk of a portfolio investing half in each company. The problems demonstrate how to apply CAPM concepts to analyze the risk and return of individual assets and a combined portfolio.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    193 views1 page

    Capm Problems

    Uploaded by

    Padyala Sriram
    The document discusses two problems related to the capital asset pricing model (CAPM). Problem I calculates the expected return and standard deviation for two individual companies' returns in different market states. Problem II does the same for two other companies and then calculates the expected return and risk of a portfolio investing half in each company. The problems demonstrate how to apply CAPM concepts to analyze the risk and return of individual assets and a combined portfolio.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 1

    CAPM Problems

    Problem I: Risk and Return of Individual Assets

    Company A Company B
    State Probability Return Return
    Boom .3 100% 20%
    Normal .4 15% 15%
    Recession .3 -70% 10%
    1.0

    1) Find the expected return for Company A and B.

    2) Find the standard deviation for Company A and B.

    Problem II: Risk and Return of a Portfolio

    Sun Tan Lotion Umbrellas


    Company C Company D Probability
    State Return Return of State
    Sunny 33% -9% 1/3
    Normal 12% 12% 1/3
    Rainy -9% 33% 1/3

    1) Find:
    Expected return for Company C
    Expected return for Company D
    Standard deviation for Company C
    Standard deviation for Company D

    2) Find the expected return and standard deviation for a portfolio which invests half
    its money in Company C and half its money in Company D.

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