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  • 1 A 3 - CAPM

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    Prabhpuneet Pandher
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    This document discusses the security market line (SML) and capital asset pricing model (CAPM). It provides inputs like expected returns, standard deviations, correlations, and covariances for stocks A and B. It then calculates the market portfolio that maximizes the Sharpe ratio as consisting of 66.67% of stock A and 33.33% of stock B, with an expected return of 10%. The document also shows how to calculate expected returns for portfolios consisting of different mixes of stocks A and B using the SML.

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    1.a.3.-CAPM

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    This document discusses the security market line (SML) and capital asset pricing model (CAPM). It provides inputs like expected returns, standard deviations, correlations, and covariances for stocks A and B. It then calculates the market portfolio that maximizes the Sharpe ratio as consisting of 66.67% of stock A and 33.33% of stock B, with an expected return of 10%. The document also shows how to calculate expected returns for portfolios consisting of different mixes of stocks A and B using the SML.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Scarica in formato XLS, PDF, TXT o leggi online su Scribd
    Segnala contenuti inappropriati
    15 visualizzazioni1 pagina

    1 A 3 - CAPM

    Caricato da

    Prabhpuneet Pandher
    This document discusses the security market line (SML) and capital asset pricing model (CAPM). It provides inputs like expected returns, standard deviations, correlations, and covariances for stocks A and B. It then calculates the market portfolio that maximizes the Sharpe ratio as consisting of 66.67% of stock A and 33.33% of stock B, with an expected return of 10%. The document also shows how to calculate expected returns for portfolios consisting of different mixes of stocks A and B using the SML.

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    Attribution Non-Commercial (BY-NC)
    Scarica in formato XLS, PDF, TXT o leggi online su Scribd
    Segnala contenuti inappropriati
    di 1

    A B 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

    Security Market Line (SML) and CAPM Risk-free rate 2.00% Stock A 8.00% 10.00% 0.0100 0.2000 0.0040 Stock B 14.00% 20.00% 0.0400

    Average return Standard deviation (sigma) of return Variance (sigma ^ 2) Correlation Covariance of returns Market portfolio M: maximizes the Sharpe ratio Proportion of stock A Proportion of stock B Expected market portfolio return, E(rM) Market portfolio: return variance Market portfolio: standard deviation Market excess return over risk-free rate Market portfolio maximizes Sharpe ratio:

    Please note: if you change inputs, you have to re-run solver! 66.67% << Solver only, please 33.33% 10.00% 0.0107 10.33% 8.00% 0.77 << Need to Max D21 by Changing Cell D13 Match Market Portfolio! 66.67% 33.33% 10.00%

    Portfolio consisting of: % in Asset A % in Asset B Expected Portfolio Return, weighted Using Security Market Line: Cov (portfolio, market) Beta (portfolio with respect to market) CAPM (SML): Expected return = riskless rate + (beta)*(ERP)

    Only Asset A 100.00% 0.00% 8.00%

    Only Asset B 0.00% 100.00% 14.00%

    Mix 50.00% 50.00% 11.00%

    0.0080 0.7500 8.00%

    0.0160 1.5000 14.00%

    0.0120 1.1250 11.00%

    0.0107 1.0000 10.00%

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