Capital Asset Pricing Model

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  • Post category:Finance

Project part 2 instructions (You may want to watch the video for details)

  1. Choose at least one firm from the 40 firms provided, and calculate the average return, variance, and standard deviation by using the stock return information provided to you.
  2. Calculate the industry average return as well as standard deviation for the industry that your selected firm belongs to.
  3. Choose one of the three market index and calculate the average return, variance, and standard deviation of the chosen market index returns. Also briefly explain why you select that particular index.
  4. Calculate the covariance between the selected market index and your stock.
  5. Calculate the beta of the individual stock based on the covariance you calculated above as well as the variance of the market index.
  6. Use the CAPM model to predict the expected return of the stock, assuming the risk free rate is 3%.
  7. Compare the average return of your stock to the industry average return as well as the expected return predicted by the CAPM model and comment on the outcomes.
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