Fin430 m2a2 – the capital asset pricing model


 

Assignment 2: The Capital Asset Pricing Model

 

You are because an bombardment in Concordia Utilities and enjoy some questions concerning the proceeds generating abilities of the community.

 

Concordia Utilities has 4 fixs in indecent states and they all effect as unconnected entities. All indecent fixs are financed by Concordia and enjoy no holdings of their own, but effect as if they were unconnected companies. You enjoy gathered some notice encircling the community's fixs as follows:

 

Table-1:

 

Plant

Beta Coefficient

% of Concordia's Income

South Town

0.85

55%

North Town

0.90

20%

East Town

1.25

15%

West Town

1.60

10%

 

You enjoy besides gathered some notice encircling the negotiate and endow that the destroy-free admonish of attention is 3% and that the community adds a negotiate destroy reward of 4% to all bombardments. The feasible negotiate produce and their probabilities are endow in Table-2:

 

Table-2:

 

Probability

Return

0.15

8%

0.2

9%

0.5

10%

0.1

11%

0.05

12%

 

Questions:

 

  1. What is the Beta coefficient for Concordia?  Explain your answers.
  2. What is Concordia's required admonish of repay on any new bombardments?  Explain your answers.
  3. What is the equation for the Security Negotiate Line (SML)?  Show the equation and graph the equation on a graph.  Explain what the SML is effective you, and the implications for the solid.
  4. Suppose Concordia has the opening to forfeiture an subjoined fix.  The require of the new fix succeed be $200 darling and enjoy a beta coefficient of 1.60.  If the new fix is expected to repay 12%, should Concordia reach the bombardment?  Explain your answers and absolve your calculations.

 

Present your anatomy of the assigned problems in Excel format. Enter non-numerical responses in the similar worksheet using textboxes.

 

 

Assignment 2 Grading Criteria

Maximum Points

Correctly conducive the beta coefficient for the community and explained its signification and sentiment to the solid.

20

Correctly conducive the Concordia's required admonish of repay on any new bombardments and explained the sentiment of this reckon to the investing activities of the solid.

20

Correctly determined the character for the SML and plotted this character, graphically. 

16

Explained the sentiment of the SML in provisions of the notice it provides and the sentiment to the solid and in provisions of advenient bombardments.

16

Correctly evaluated the new bombardment and made a warning as to whether the bombardment should go ready, explaining the rationale.

16

Used redress spelling, phraseology, and punctuation and followed APA title guidelines.

12

Total:

100