名师归纳总结 精品word资料 - - - - - - - - - - - - - - -Chapter 9 - The Capital Asset Pricing ModelCHAPTER 9: THE CAPITAL ASSET PRICING MODELPROBLEM SETS1. ErP rfP ErM r f .18.06P.14.06P.12.081.52. If the security s correlation coefficient with the market portfolio doubles with all other variables such as variances unchanged, then beta, and therefore the risk premium, will also double. The current risk premium is: 14% 6% = 8%The new risk premium would be 16%, and the new discount rate for the securitywould be: 16% + 6% = 22%If the stock pays a constant perpetual dividend, then we know from the original data that the dividend D must satisfy the equation for the present value of a perpetuity:Price = Dividend/Discount rate50 = D/0.14D = 500.14 = $7.00At the new discount rate of 22%, the stock would be worth: $7/0.22 = $31.82 The increase in stock risk has lowered its value by 36.36%.3. a.False.= 0 implies Er = r f , not zero.b. False. Investors require a risk premium only for bearing systematic undiversifiable or market risk. Total volatility, as measured by the standard deviation, includes diversifiable risk.c. False. Your portfolio should be invested 75% in the market portfolio and 25%in T-bills. Then: P0.7510.2500.754. The expected return is the return predicted by the CAPM for a given level of systematic risk.E ri r fi E rM r f E r$1 Discount .041.5.10.04.13,or 13%E rEverything$5 .041.0.10.04.10,or 10%9-1Copyright . 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 第 1 页，共 10 页 - - - - - - - - -名师归纳总结 精品word资料 - - - - - - - - - - - - - - -Chapter 9 - The Capital Asset Pricing Model5. According to the CAPM, $1 Discount Stores requires a return of 13% based on its systematic risk level of = 1.5However, the forecasted return is only 12%. Therefore, the security is currently overvalued.Everything $5 requires a return of 10% based on its systematic risk level of.However, the forecasted return is 11%. Therefore, the security is currently undervalued.6. Correct answer is choice a.The expected return of a stock with a = 1.0 must, on average, be the same as the expected return of the market which also has a =7. Correct answer is choice a. Beta is a measure of systematic risk. Since only systematic risk is rewarded, it is safe to conclude that the expected return will be higher for Kaskin s stock than for Quinn s stock.8. The appropriate discount rate for the project is:r f + E r M r f = .08 + 1.8.16 .08 = .224, or 22.4%Using this discount rate:NPV$4010$15t$40$15Annuity factor 22.4%, 10 years = $18.09t 1 1.224The internal rate of return IRR for the project is 35.73%. Recall from your introductory finance class that NPV is positive if IRR discount rate or, equivalently, hurdle rate. The highest value that beta can take before the hurdle rate exceeds the IRR is determined by:.3573 = .08 + .1 6 .08= .2773/.08 = 3.479. a.Call the aggressive stock A and the defensive stock D. Beta is the sensitivityof the stock s return to the market return, i.e., the change in the stock return per unit change in the market return. Thereforew, e compute each stock s beta by calculating the difference in its return across the two scenarios divided bythe difference in the market return:.02.382.0 .06.120.30AD.05.25.05.259-2Copyright . 2021 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 第 2 页，共 10 页 - - - - - - - - -名师归纳总结 精品word资料 - - - - - - - - - - - - - - -Chapter 9 - The Capital Asset Pricing Modelb. With the two scenarios equally likely, the expected return is an average of the two possible outcomes:Er A = 0.5.02 + .38 = .18 = 18%Er D = 0.5.06 + .12 = .09 = 9%c. The SML is determined by the market expected return of 0.5 .25 + .05 =15%, with M = 1, andr f = 6% which hasf =0. See the following graph:Expected Return - Beta Relationship403530nrRute25Ade20etc15xpDME1050SMLA00.511.522.53BetaThe equation for the security market line is: Er = .06 + .1 5 .06d. Based on its risk, the aggressive stock has a required expected return of:Er A = .06 + 2.0.15.06 = .24 = 24%The analyst s forecast of expected return is only. T1h8u%s the stock s alpha is:A = actually expected returnrequired return given risk= 18% 24% = 6%