CAPM method in Bellrock Investment Portfolio

Document Type:Essay

Subject Area:Economics

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There are however different methods through which we can analyze and interpret such variation changes or trait in financial securities. This paper covers CAPM method as a pricing strategy of the securities in Bellrock Investment Portfolio. Part A Requirement 1 (i) Capital asset pricing model (CAPM) is an abstraction that helps in determining the relationship between the expected returns of a security or a portfolio and the systematic risk (Gençay, Selçuk & Whitcher, 23). The two main components of a CAPM so as to understand its applicability. The risk free rate of return in an investment is theoretical rate of return in a zero risk investment. E   (0. 046) N=200     R2 = 0. 607 Variance = 4. 78 N= 200 Sample mean = 0. 607 Beta = 4. On the other hand, an alternative hypothesis occurs or is demonstrated when there is a variance in the resultant security mean and that of the market.

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The case above demonstrated. The relevant diagram (s) that shows the region of rejection or acceptance and their respective critical values. Shown above. • Test the null hypothesis and provide an economic intuition for the estimates. It is important to note that market capitalization of small firms will be much sensitive to macroeconomic risk factors such as production and risk premium changes risks. On the other hand, the size of the firm is indirectly proportional to the CAPM beta risk adjustment returns. I. e. Large firms have small CAPM beta risk adjustment returns and vice versa. Heteroscedasticity tests In this test, all errors have the same error variance. These tests differ in the power of results with relation to the different kind of heteroscedasticity.

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