Fin 571 Research Paper

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CAPM Rita-Anne Ben-Cherqui University of Phoenix Finance/571 January 12, 2013 Mohammad Agwa | The following table shows betas for several companies. How do I calculate each stock's expected rate of return using the CAPM. Assuming the risk-free rate of interest is 5 percent. Using a 9 percent risk premium for the market portfolio | Company BETA | | | | | | | | | | | Cisco 2.03 | | | | | CitiGroup 1.36 | | | | | Merck .40 | | | | | Walt Disney .84 | | | | | | | | | | | | | | | | | CAPM (Capital Asset Pricing Model…show more content…
| a. The expected rate of return on an investment with a beta of 2 is twice as high as the expected rate of return of the market portfolio. | FALSE | | | | | | |…show more content…
| | | | | | | | TRUE | | | | | | | | | All the unique risk of stocks in a diversified portfolio have been diversified away | | | | | | | | | | | | | | | | | | | | | c. If a stock's expected rate of return plots below the security market line, it is underprices. | FALSE | | | | | | | | | It is overpriced. The expected return is less which means that return is over a higher price | | | | | | | | | | | d. A diversified portfolio with a beta of 2 is twice as volatile as the market portfolio. | | TRUE | | | | | | |

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