capm group presentation-syndicate 10

7/21/2019 CAPM Group Presentation-Syndicate 10

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The Capital Asset Pricing Model(CAPM)

Presented by Syndicate 10:

Frans Jofin Pangabean (!11"#$$)%arina &arasati (!11"#1)&ina Setia'ati (!11"#")

Marnala Josha (011"0)



Capital Asset PricingModel (CAPM)

CAPM : The relationshipbet'een *+S% and ,-P,CT,.

*,T/*epected retrn on 2ar3et

,pected retrn on

indi4idal secrities



,(*M) 5 *F 6 *is3 Pre2i2

E(RM) : Expected return on market

RF : The risk-free rate

Risk Premium : E(RM) - RF

,pected *etrn on Mar3et



,pected *etrn on +ndi4idalSecrities

,(*) 5 *F 6 7 8,(*M) 9 *F

E(R) : Expected return on individualmarket

RF : The risk-free rate

β : eta coefficient

E(RM) : Expected return on market



;eta Coe<cient

(7)• Measure of an asset!s risk in relation to themarket

• Ma"ni#cation factor•

$ measurement of the responsiveness of asecurit% to movements in the market portfolio• β & ' the expected return on the securit% & the

expected return on the market• β ' the expected return on the securit% ill *e more

volatile than expected return on the market• + , ' the expected return on the securit% ill *e less

volatile than expected return on the market• β ' the expected return on the securit% & the risk-

fee rate



Proble2 11

=o o'n a stoc3 port>olio in4ested :

? percent in stoc3 @ 'ith beta 0B#?

0 percent in stoc3 * 'ith beta 1B!0

1? percent in stoc3 S 'ith beta 1B

"0 percent in stoc3 T 'ith beta 1B1$

Dhat is the port>olio beta E



The beta o> a port>olio is the s2 o> the 'eight

o> each asset ti2es the beta o> each assetB Sothe beta o> the port>olio is:

7P 5 0B?(B#?) 6 0B0(1B!0) 6

0B1?(1B) 6 0B"0(1B1$)

5 1B"

So the Port>olio ;eta is 1B"



Proble2 1

=o o'n a port>olio eally in4ested ina ris39>ree asset and t'o stoc3sB +> oneo> the stoc3s has a beta o> 1B? and the

total port>olio is eally as ris3y as the2ar3et 'hat 2st the beta be >or theother stoc3 in yor port>olio E



The beta o> a port>olio is the s2 o> the 'eight o>each asset ti2es the beta o> each assetB +> the

port>olio is as ris3y as the 2ar3et it 2st ha4e thesa2e beta as the 2ar3etB Since the beta o> the2ar3et is one 'e 3no' the beta o> or port>olio isoneB De also need to re2e2ber that the beta o> theris39>ree asset is GeroB +t has to be Gero since theasset has no ris3B Setting p the eation >or thebeta o> or port>olio 'e get :

7P 5 1B0 5 1H(0) 6 1H(1B?)

6 1H(7)

Sol4ing >or the beta o> Stoc3 - 'e get:

7- 5 1B1?



Proble2 1

A stoc3 has a ;eta o> 1B? the epectedretrn on the 2ar3et is 1 percent andthe ris39>ree rate is ? percentB Dhat 2st

the epected retrn on this stoc3 beE

β &'./ RM &

'.0

RF &

Expected Return 1



CAPM states the relationship bet'een the ris3o> an asset and its epected retrnB CAPM is:

,(*i) 5 *> 6 8,(*M) I *> 7

Sbstitting the 4ales 'e are gi4en 'e Knd:

,(*i) 5 0B0? 6 (0B1 I 0B0?)

(1B?)

5 0B0? 6 0B0#0 (1B?)

5 0B1 or 1BL



Proble2 1"

A stoc3 has an epected retrn o> 1"Bpercent the ris39>ree rate is " percentand the 2ar3et ris3 pre2i2 is #

percentB Dhat 2st the beta o> thisstoc3 beE

E(Ri) & '2.

Rf & 2 0

Risk Premium &

3 0

4o5 theβ 1



De are gi4en the 4ales >or the CAPM ecept >orthe o> the stoc3B De need to sbstitte these4ales into the CAPM and sol4e >or the o> the

stoc3B ne i2portant thing 'e need to realiGe isthat 'e are gi4en the 2ar3et ris3 pre2i2B The2ar3et ris3 pre2i2 is the epected retrn o>the 2ar3et 2ins the ris39>ree rateB De 2st becare>l not to se this 4ale as the epected

retrn o> the 2ar3etB /sing the CAPM 'e Knd:

,(*i) 5 *> 6 *is3 Pre2i2 (7)

,(*i) 5 0B1" 5 0B0" 6 0B0# 7

So the 7 is 1B"$



Proble2 1?

A stoc3 has an epectedretrn o> 10B? percent its

beta is 0B# and the ris39>reerate is ?B? percentB Dhat2st the epected retrn on

the 2ar3et beE



Nere 'e need to Knd the epected

retrn o> the 2ar3et sing the CAPMBSbstitting the 4ales gi4en andsol4ing >or the epected retrn o> the

2ar3et 'e Knd:

,(*i) 5 0B10? 5 0B0?? 6 8,(*M) I

0B0?? (0B#)

,(*M) 5 0B1? or 1B?L



Proble2 1$

A stoc3 has an epectedretrn o> 1$B percent a beta

o> 1B#? and the epectedretrn on the 2ar3et is 11percentB Dhat 2st the ris39

>ree rate beE



Nere 'e need to Knd the ris39>ree rate singthe CAPMB Sbstitting the 4ales gi4en andsol4ing >or the ris39>ree rate 'e Knd:

,(*i) 9O 0B1$ 5 *> 6 (0B11 I

*> ) (1B#?)

0 B1$ 5 *> 6 0B1!? I 1B#?

*>

*> 5 0B0"0# or "B0#L



Than3 =o

capm group presentation-syndicate 10

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