Now that you have learned how to diversify an investment portfolio and compute the statistics in...

Now that you have learned how to diversify an investment portfolio and compute the statistics in Excel. Discuss why we need to use risk free rate to compute CML and what excel functions/ shortcuts you liked in this module and want to share with your peers.

Solutions

Expert Solution

The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.

Formula:

Investors expect to be compensated for risk and the time value of money. The risk-free rate in the CAPM formula accounts for the time value of money. The other components of the CAPM formula account for the investor taking on additional risk.

The goal of the CAPM formula is to evaluate whether a stock is fairly valued when its risk and the time value of money are compared to its expected return.

Moreover, the module information and excel formulas are not given, hence we will not be able to answer that requirement.

ekkarill92 answered 1 year ago

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