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Graph the security market line and plot Company
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Ra<span class="vlist-s"></span></span> <span class="mrel">= <span XXXXX="XXXX">XXX<span XXXXX="vlist-s"></span></span> </span><span XXXXX="XXXX">+ <span class="XXXX">β</span><span class="XXXXX-s"> <span XXXXX="mbin">∗</span><span XXXXX="XXXX"></span> <span class="mopen">( <span XXXXX="XXXX">Rm <span class="XXXXX-s"></span><span XXXXX="XXXX"></span></span>− <span class="XXXX">Rrf<span class="XXXXX-s"></span></span> </span><span XXXXX="XXXXXX">)</span></span></span> </p> <p><span XXXXX="XXXX">XXXXX: </span> Ra<span class="XXXXX-s"></span><span XXXXX="mrel"></span>=<span class="mord"></span>XXXXXXXXXXXXXXXXXXXXXXXXX </p> <p><span XXXXX="mord">XXX<span XXXXX="vlist-s"></span></span> <span class="XXXX">= <span class="mord">Risk-XXXXXXXX</span></span> </p> <p><span class="mord">Rm<span XXXXX="vlist-s"> </span><span XXXXX="mrel">= <span class="mord">XXXXXXXXXXXXXXXXXXXXXXXXX</span></span></span> </p> <p><span XXXXX="XXXX">X <span class="XXXXX-s"></span><span XXXXX="mrel"></span>= <span XXXXX="XXXX">XXXXXXXXXXXXXXXXXXXX</span></span> </p> <p><span class="XXXXX">(</span><span class="XXXX">Rm<span class="XXXXX-s"></span><span XXXXX="XXXX"></span>−</span><span class="mord"></span>Rrf<span class="vlist-s"></span><span class="XXXXXX"></span>) <span class="mrel">= <span class="XXXX">XXXXXXXXXXXXXXXXXXX</span></span><span XXXXX="XXXXX-s"></span> </p> <p><span class="vlist-s"></span> </p> <p><span XXXXX="vlist-s"> </span>Beta's Role in CAPM :</p><p>Beta is XXX only XXXXXXXX measure of a XXXXX’s XXXX. It measures a stock’s relative XXXXXXXXXX. XX, it XXXXX the up-down XX a particular stock as compare to the up-XXXX XX the entire stock XXXXXX.</p>">
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<!DOCTYPE html PUBLIC "-//ABISOURCE//DTD XHTML plus AWML 2.2//EN" "http://www.abisource.com/2004/xhtml-awml/xhtml-awml.mod"><html xmlns="http://www.w3.org/1999/xhtml" xmlns:awml="http://www.abisource.com/2004/xhtml-awml/"> <head> </head> <body> <div> <p style="text-indent:36.000000pt"> <span style="font-weight:bold;font-size:16pt;font-family:'Times New Roman'">CAPM</span> </p> <p style="margin-bottom:0.000000pt"> <span style="font-style:italic;font-size:12pt;font-family:'Times New Roman';color:#333333">Define CAPM.</span> </p> <p style="margin-bottom:0.000000pt"> <span style="font-style:italic;font-size:12pt;font-family:'Times New Roman';color:#333333">Describe how the concept of beta impacts financial decision making.</span> </p> <p style="margin-bottom:0.000000pt"> <span style="font-style:italic;font-size:12pt;font-family:'Times New Roman';color:#333333">Calculate the required return for a Company Z that has a beta of 1.4 if the market risk premium is X% XXX the XXXX-free rate is X%.</span> </p> <p style="margin-bottom:X.XXXXXXXX"> <span style="font-style:italic;font-size:XXXX;font-XXXXXX:'Times New XXXXX';XXXXX:#XXXXXX">XXXXX XXX XXXXXXXX market XXXX and plot Company X XX that graph.</span> </p> <p> </p> <p> <span style="XXXX-size:XXXX;font-XXXXXX:'Times XXX XXXXX';XXXXX:#222222;XXXXXXXXXX:#ffffff">CAPM (capital XXXXX XXXXXXX model) : A model XXXX XXXXXXXXX the XXXXXXXXXXXX XXXXXXX risk and XXXXXXXX return XXX XXXX is XXXX in the XXXXXXX of XXXXX securities. The CAPM formula XX :</span> </p> <p> <span style="font-XXXX:12pt;font-family:'Times New Roman';color:#222222;XXXXXXXXXX:#XXXXXX"></span><span style="font-XXXX:XXXX;font-XXXXXX:'Times XXX Roman';XXXXX:#111111;background:#XXXXXX">Ra = Rrf + β</span><span style="font-size:12pt;font-XXXXXX:'XXXXXXX XXXX';color:#XXXXXX;XXXXXXXXXX:#ffffff">∗</span><span style="XXXX-size:XXXX;font-XXXXXX:'XXXXX XXX Roman';XXXXX:#111111;background:#XXXXXX"> ( XX − XXX )</span> </p> <p style="XXXX-XXXXXX:36.XXXXXXXX"> <span style="font-size:12pt;XXXX-family:'Times XXX Roman';color:#111111;background:#XXXXXX">where:</span><span style="font-XXXXXX:bold;XXXX-size:XXXX;font-family:'Times New XXXXX';color:#XXXXXX;background:#XXXXXX"></span><span style="font-XXXX:12pt;font-family:'Times XXX XXXXX';color:#111111;background:#XXXXXX">XX=Expected return XX a XXXXXXXX</span> </p> <p style="margin-XXXX:XX.000000pt;text-indent:XX.XXXXXXXX"> <span style="font-size:XXXX;XXXX-XXXXXX:'XXXXX XXX XXXXX';color:#222222;background:#XXXXXX"></span><span style="font-size:XXXX;font-family:'XXXXX XXX XXXXX';XXXXX:#111111;background:#XXXXXX">Rrf = XXXX-XXXX rate</span> </p> <p style="XXXXXX-left:XX.XXXXXXXX;XXXX-XXXXXX:XX.000000pt"> <span style="XXXX-XXXX:XXXX;font-XXXXXX:'Times XXX XXXXX';color:#111111;XXXXXXXXXX:#ffffff">Rm = XXXXXXXX return XX the market</span> </p> <p style="margin-left:72.XXXXXXXX;XXXX-indent:36.000000pt"> <span style="font-size:12pt;XXXX-family:'XXXXX XXX Roman';XXXXX:#111111;background:#XXXXXX">X = XXX XXXX of the XXXXXXXX</span> </p> <p style="margin-XXXX:XX.000000pt;text-indent:XX.XXXXXXXX"> <span style="XXXX-size:XXXX;font-XXXXXX:'XXXXX XXX XXXXX';color:#XXXXXX;XXXXXXXXXX:#XXXXXX">(Rm−XXX) = Equity market premium</span> </p> <p style="margin-left:72.000000pt;text-XXXXXX:36.000000pt"> </p> <XX id="XXXXXXX" awml:style="XXXXXXX X"> <span style="XXXX-XXXX:XXXX;font-family:'Times New XXXXX';color:#111111;XXXXXXXXXX:#ffffff"></span><span style="XXXX-weight:XXXX;font-XXXX:12pt;XXXX-family:'XXXXX New Roman';color:#111111">XXXX's Role in XXXX :</span> </h2> <XX id="XXXXXXX" awml:style="heading X"> </XX> <XX id="AbiTOC2" awml:style="XXXXXXX X"> <span style="XXXX-XXXXXX:XXXX;XXXX-size:12pt;XXXX-family:'Times New XXXXX'">XXXX XX the XXXX relevant measure XX a stock’s XXXX. It measures a XXXXX’s XXXXXXXX XXXXXXXXXX. So, it XXXXX the up-down of a XXXXXXXXXX XXXXX as compare to the XX-down XX the XXXXXX XXXXX market.</span> </XX> <h2 id="AbiTOC3" awml:style="XXXXXXX X"> </h2> <p style="XXXX-XXXXXX:XX.000000pt"> <span style="font-XXXX:12pt;XXXX-XXXXXX:'XXXXX XXX XXXXX';color:#111111;XXXXXXXXXX:#ffffff">β = X.X ,</span><span style="font-size:XXXX;XXXX-XXXXXX:'Times XXX Roman';XXXXX:#333333">XXX market XXXX premium</span><span style="font-XXXX:12pt;font-family:'Times XXX XXXXX';color:#111111;background:#XXXXXX">(XX−XXX)</span><span style="font-XXXX:12pt;XXXX-family:'Times XXX Roman';color:#XXXXXX"> = 9%,</span><span style="font-XXXX:XXXX;font-XXXXXX:'Times XXX XXXXX';color:#111111;background:#XXXXXX"></span><span style="font-size:XXXX;XXXX-family:'XXXXX New XXXXX';color:#333333">XXX risk-XXXX XXXX</span><span style="XXXX-size:XXXX;XXXX-family:'XXXXX XXX XXXXX';XXXXX:#222222;background:#XXXXXX"></span><span style="font-size:12pt;XXXX-family:'XXXXX New XXXXX';XXXXX:#XXXXXX;background:#ffffff">Rrf = X%,</span> </p> <XX id="XXXXXXX" awml:style="heading X"> </XX> <p> <span style="XXXX-size:12pt;XXXX-family:'XXXXX New Roman';color:#111111;background:#XXXXXX">Expected return XX a XXXXXXXX XX = XXX + β</span><span style="XXXX-XXXX:12pt;XXXX-XXXXXX:'XXXXXXX Math';color:#111111;background:#XXXXXX">∗</span><span style="XXXX-size:XXXX;XXXX-family:'XXXXX New XXXXX';color:#XXXXXX;background:#ffffff"> ( XX − Rrf )</span> </p> <p> <span style="font-size:XXXX;XXXX-XXXXXX:'XXXXX New Roman';color:#111111;background:#XXXXXX">= X% + 1.X *X%</span> </p> <p> <span style="XXXX-size:XXXX;font-XXXXXX:'XXXXX New Roman';color:#111111;background:#ffffff">=</span><span style="font-XXXXXX:bold;font-XXXX:12pt;XXXX-XXXXXX:'Times New XXXXX';XXXXX:#XXXXXX;XXXXXXXXXX:#ffffff">16.6 %</span> </p> <p> <span style="font-size:XXXX;XXXX-XXXXXX:'XXXXX XXX Roman';XXXXX:#111111;XXXXXXXXXX:#XXXXXX">To plot</span><span style="XXXX-size:12pt;font-family:'XXXXX XXX XXXXX';color:#333333">company X XX the security market XXXX</span><span style="font-style:italic;font-size:XXXX;XXXX-XXXXXX:'XXXXX New XXXXX';XXXXX:#333333"></span><span style="XXXX-XXXX:12pt;XXXX-XXXXXX:'Times XXX XXXXX';XXXXX:#XXXXXX">XXXXX:</span> </p> <p> <span style="font-size:XXXX;XXXX-family:'XXXXX XXX Roman';XXXXX:#XXXXXX">XXXX the values of required XXXXXX XXX different beta value .</span> </p> <p> <span style="font-XXXX:XXXX;font-family:'XXXXX XXX XXXXX';XXXXX:#333333">XXXX</span><span style="font-size:12pt;font-XXXXXX:'XXXXX New Roman';color:#111111;XXXXXXXXXX:#XXXXXX">X as XXX X-XXXXXXXXXX and Ra as X-XXXXXXXXXX, and XXXX XXX</span><span style="XXXX-size:XXXX;XXXX-family:'Times XXX Roman';color:#333333">XXXXXXXX market line. Mark XXX point of Ra on XXX line XXXXXXXXXX XX</span><span style="font-XXXX:XXXX;XXXX-family:'Times XXX XXXXX';color:#XXXXXX;XXXXXXXXXX:#XXXXXX">X = 1.X.</span> </p> <XX id="AbiTOC5" awml:style="XXXXXXX X"> </h2> </div> </body></XXXX>">
