Essays on CAPM

Yale University Investments Office: February 2011

David Swensen definition of efficient markets hypothesis: A financial market is (informationally) efficient when market prices reflect all available information about value. From the case study it can be said that Swensen believed in market timing in markets for stocks, bonds, private equity, real estates, oil and gas. Features of private equity markets that make market timing difficult are valuation, performance, regulation and the ongoing volatility and uncertainty in global markets. Based on the case analysis David Swensen would pick on option two that is a fund managed by energy industry experts with engineering undergraduate degrees from prominent state ...

Galaxy Skis has a tough time ahead of itself when it comes to using the international financial market. This is because it is looking at building a plant in China, where the government frequently supports manipulating its currency in order to maintain a competitive edge over other countries in terms of resource and labor cost (Catalan, 2010). This can be problematic for a company that seeks to do continuous business in the country due to the fluctuating market system and exchange rate, though analysts claim that China’s actions will not have long term effects on the flow of ...

Calculating cost of equity using Gorden Model:

In the first section of this paper, we will calculate the cost of equity of Nike Inc. using the Gorden Model as part of which, recent dividend payment will be used for estimating the cost of equity multiple. Followed are the calculations: Value of Stock: Current Dividend(1+Growth Rate)/ (Required Rate- Growth Rate) 58.02= 0.62/( Required Rate- 0.1209) = 13.15%

Here:

Growth Rate= Compounded Annual Growth Rate for past 5 years = (0.62/0.35)0.20- 1 = 12.09% Therefore, following Gorden Model, we found that the cost of equity for Nike Inc is 12.09%. However, because of the limitations of Gorden Model, ...

The project management professional (PMP) certification targets project managers who possess formal training in addition to a three-year work experience in the field of project management. The PMP certification commands an international recognition plus high value in regards to project management. The primary goal of this certificate is to evaluate as well as measure objectively the candidate's professional knowledge. Its pursuance is governed unbiased by the applicable laws. PMI offers oversight of the given process, and a qualifying candidate must pass a set exam do as to get the certification. Qualification for the PMP exam requires the fulfillment of ...

Galaxy International operates in a niche market; this is because skiing is only possible in very specific areas, and only a limited number of the population skis regularly anyway. Despite this, the company has performed outstandingly well to be achieving the level of sales with a small staff. This being said, Galaxy International needs to raise capital quickly and in an efficient way to successfully continue expanding to fully capture its full market size. By offering a unique product that is flexible yet tough, Jeremy is likely to continue to increase the volume of his sales and therefore the ...

1. An investor does not need to make a decision which portfolio to choose when a risk free asset is included. There is now only one tangent portfolio he can choose. Explain this statement with graphs analysis. The line of possible portfolio risk and return combinations given the risk-free rate and the risk and return of the portfolio of risky assets is called capital allocation line(CAL). For an individual investors and under the assumption of CAPM model that each investor faces homogeneous expectations, the best capital allocation line is the one that offers the highest expected utility in ...

Investment Portfolio Project Final Paper and Presentation

Investment Portfolio Project Final Paper and Presentation In an ideal situation, an investor would like to investment in an asset or portfolio of asset characterized by high returns and low risk. However, the ideal world does not exist and so is the ideal portfolio as opined in the sentence above. This understanding gave birth to several portfolio theories and among these theories is the modern portfolio theory whose key contributors included Harry Markowitz and William Sharpe. In the modern portfolio theory of MPT as it is famously referred to, the theorists emphasize the importance of diversification in the portfolio. ...

“Diversification eliminates unique risk. But there is some risk that diversification cannot eliminate”

Diversification of portfolios is one of the effective ways to minimize the risks and increase the returns. However, it is acclaimed that there are certain risks that cannot be eliminated. These risks are called market risks that cannot be overcome through diversification of the portfolio. There are several theories that stress that the diversification of portfolios should be used to bring stability in its returns and lessen the risks. Systematic risks or market risk emerged because of the changes in the economic cycles of the market that are influenced by various factors and activities taken place in the economy ( ...

Introduction

The purpose of business is to obtain the maximum revenue at the lowest cost of capital in a competitive environment. The realization of this goal requires of comparing the size of the capital invested in the production and trading activities with the financial results of this activity. However, in the implementation of any kind of economic activity there is objectively a risk of loss, the volume of which is due to the specifics of a particular business. Risk is the probability of losses, damages, shortfalls of projected revenues, profits. Losses that occur in business activities can be divided into ...

INVESTMENT ANALYSIS OF VIETNAM

INVESTMENT ANALYSIS OF VIETNAM

Summary

Vietnam has changed in the last thirty years from an agrarian country to a service and manufacture country leader in the world in growth and economic activity. The country has a communist system legally but, in the practice, the country has a liberal policy in the economy signing the Trans-Pacific Free Trade Agreement but maintaining the political control under the rule of one party. The country offers opportunities and risks for individual and corporation with the intention to invest.

Introduction

Vietnam is known in the world as the country where United States of America lost a ...

The demand for the financial specialists is at its peak than ever with the Bureau of Business Statistics projecting an 8% growth from 2014 to 2024. Reflecting on this statistics, more than 632400 new jobs in finance field shall be open within the same period. The high demand follows the increased regulatory frameworks in the business world accommodating companies to demand more financial specialists. In matching the world corporate demand for financial professionals, the finance graduates are faced with numerous financial careers that offer job opportunities to exercise their financial skills. This paper seeks to explore the careers in ...

The purpose of the report is to examine how the acquiring company, Boeing, will acquire its most significant competitor Lockheed Martin Corporation. This is despite the fact that both companies are competing in the aerospace/defense products and services industry (Yahoo, 2016). Boeing is considered as the largest commercial, defense, space and security manufacturer in the world (Boeing, 2016, p.ii) while Lockheed manufactures products for government agencies under the civil, intelligence, and defense departments (Yahoo, 2016a). The difficulty in this task is that Boeing’s market capitalization is at $84.79 billion, which was only slightly higher than the market capitalization ...

Abstract

Going international has stood to be the primary means by which corporations have gained access to the global markets. Beyond their home markets, companies have been able to increase their sales and growth rate following the large customer base created and greater access to capital in existence in the larger market. The emerging markets such as China have been the primary focus for the companies seeking to globalize their operations. Companies have used different financial strategies, such as bonds and stocks that finance expansion and growth in the international markets. However, an ultimate understanding of the internationalization plays a ...

Vodafone

Introduction This report seeks to assess the expected returns for Vodafone using the CAPM model. The CAPM model is based on three inputs: risk-free return, market return and company beta. Therefore, the report will estimate these three parameters and use them to find the expected return of Vodafone. Finally, it will provide a critique of the CAPM estimation technique.

The risk-free rate of return is often taken as the return of short term government securities. The 3-month treasury bill for UK is 0.48 . Therefore, we assume that the risk free rate.

Market Return

Expected market return are the average rate of ...

Introduction

The one of the most important questions for investors is how the expected return of an investment is affected by its risk. The answer to this question gives the Capital Asset Pricing Model (CAPM). It was developed by W. Sharpe, J. Linter, J. Treynor and J. Mossin in 1960s. The idea of CAPM is that there are a number of risks that have an impact on the asset prices. It is natural to assume that an investor should receive high reruns from the high-risk investments. The price of such assets should be relatively high in order to compensate a ...

PART A

Capital Asset Pricing Model (CAPM) We decided to use the ASX100 for the CAPM model and the main benchmark of our portfolio report. The ASX100 presents the large Australian companies and we believe that the ASX100 is a valid proxy of our frameworks. As Adjusted R Square in Table 1 show, most of the stock returns are expounded by the market return. The Beats in the table below are presented by a significantly low p-value. The beat of the stock presents the sensitivity of that store return to the market return. The CAPM model demonstrates that the Australia New ...

Price: 438.31 GBP Date: 4 May 2016

Company profile: Aviva Plc provides insurance, savings, and investment products to over 31 million customers around the world (Aviva, 2016). Aviva is a composite insurance that combines life insurance, general insurance, and asset management (Aviva, 2016). Aviva operates worldwide with its headquarters in London United Kingdom (Yahoo! Finance, 2016).

One-year Price chart:

Figure 1: One-Year Aviva Price Chart

Source: Bloomberg

Price performance: Valuation (by DDM and by comparables):

Analysts’ recommendation:

Introduction 3 Price performance and news analysis 3 News 4 Valuation 5 Multi-stage DDM 5 SML analysis 6 Discussion of pros and cons of the methods used for the above valuation 7 Conclusion 10

Appendix 13

Exhbit1: ...

Introduction

In this assignment, we will discuss and describe the application of statistics and probability theory to a real world problem. Our task is to evaluate and summarize the performance of a given stock (y). This report consists of the four parts. The first part is descriptive statistics of the given data between the two time periods and between the given stock and the Standard & Poor’s 500 index. Next, a hypothesis test will be performed in order to examine the performance of stock (y). The third part of the report includes Capital Asset Pricing Model estimation by the mean ...

Wall Street Journal Essays

Three authors of The Wall Street Journal wrote on 11 December 2015 an article titled "Worried about Your High-Yield Bond Fund? Devise an Exit Strategy", that article is a warning to all individual and corporative investors that have important positions in Mutual Funds with previous performances over 10% in 2014 and 2015. Those mutual funds represent a risk for the current investors that have positions in those high-yield bonds. Those bonds have positions in China and other emerging markets that are slowing their growth for 2016 and affront problems in cash flow and currency depreciation (Maxey, Krouse, and Zweig). ...

Investment Portfolio Management

The company was established in 1997 and its main activity is to provide is a global coverage for streaming movies and TV series. The total subscribers to the services are 75 million people spread over 190 countries. It is the world leading on the side of linear TV networks covering most of the entertainment movies and series. They offer their programming though this is done on-demand via the applications which run on both phones and the smart TVs.

Historical price method

Using the analyst consensus method to predict Netflix stock price 12 months from today we will rely heavily on the methodology. ...

Summary

Chesapeake Energy Corporation was incorporated in 1989 and trades at the New York Stock Exchange under the Ticker Symbol (CHK) (Bloomberg). The company operates in the oil and gas industry. The company share price has declined form a 52-week high of $16.98 to a 52-week low of $1.50. As at April 4th, the share closed at $3.86. Over the past 1 year investors have lost 74.46% of their wealth. The share performance is 75.40% lower than the market return (S&P Index). The share price is likely to experience further declines and therefore recommend investors to sell of the company ...

INVESTMENTS

Economic overview The economy of Jamaica greatly relies on services that accounts for over 70 percent of its GDP. The Nation continues to earn most of the foreign exchange from remittances, tourism and alumina/bauxite. Both tourism and remittances accounts for 30 percent each, whereas alumina/bauxite exports contribute roughly 5 percent of the GDP. The alumina/bauxite sector was the greatly affected by global downturn whereas the remittance flow and tourism industry remained resilient. The economy encounters several challenges to its growth including soaring corruption and crimes, huge-scale underemployment and unemployment as well as a debt-to-the-GDP ratio that is about 130 ...

Principles of finance

Undiversifiable risk is also known as known as systematic risk. This is a risk, which is common to all securities, for example the market risk. However, diversifiable risk is also known as unsystematic or idiosyncratic risk. This is the risk associated with individual assets or certain sector of economy or a specific company. A major lawsuit against one large corporation is a diversifiable risk because its effects will be felt in that corporation only and not the entire economy or market (French, 2003). A substantial rise in oil prices is an undiversifiable risk because oil affects all sectors of economy in ...