Risk & Return and the CAPM
1. Risk & Return and the CAPM.
Based on the following information, calculate the required return based on the CAPM:
Risk Free Rate = 3.5%
Market Return =10%
Beta = 1.08
2. Holding Period Return
Based on the following information calculate the holding period return:
P0 = $11.00
P1 = $11.40
D1 = $1.02
3. Risk and Return, Coefficient of Variation
Based on the following information, calculate the coefficient of variation and select the best investment based on the risk/reward relationship.
Std Dev. Exp. Return
Company A 7.4 13.2
Company B 11.6 18.9
4. Sources of Risk & Diversification – convertible bond.
Address each source of risk from the portfolio perspective and how diversification impacts them.