CourseLover

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    Devry University
    Sep-2004 - Aug-2010

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  • Assistant Financial Analyst
    NatSteel Holdings Pte Ltd
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Category > Business & Finance Posted 08 Dec 2017 My Price 10.00

Capital Asset Pricing Model (CAPM)

b) This question relates to the Capital Asset Pricing Model (CAPM)

Fresh Fysh Ltd owns shares in four different companies, as set out below, and -based on their current share prices – expects the following returns.

Company Name         Expected Return (%)         Beta

Prawn Ltd                    10.8%                 0.5

Salmon Ltd                   13.0%                 0.8

Shark Ltd                    15.6%                 1.2

Trout Ltd                     17.4%                 1.7

The risk free rate of interest is currently 6% and the market risk premium is 8%.

i) Based on the CAPM, which of the above shares are undervalued, overvalued or correctly valued on the share market? Show all calculations and reasons for your answers.

ii) Using the above information, draw a Security Market Line graph, and plot all securities on the chart.  

Answers

CourseLover
(12)
Status NEW Posted 08 Dec 2017 06:12 AM My Price 10.00

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