CAPM Illustration 1


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Investment in equity shares

Initial price

Dividend

Market price (end of the year)

Beta risk factor

Cement Ltd

25

2

50

0.8

Steel Ltd

35

2

60

0.7

Liquor Ltd

45

2

135

0.5

Government bonds

1000

140

1005

0.99

Risk-free rate may be 14%

You are required to calculate

a)      Expected return using Capital asset pricing model (CAPM)

b)      Average return of the portfolio.


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