Capital asset pricing model (part b)

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1. Is it true that if the B=0.8 then it means that it’s 20% less Risky then the Market, So the Premium we want will be 20% less then the Market(i.e 8%) that’s why in Example No.2 we Subtract 20% then the Market Premium(i.e 8%)
Ex= 20% of 8 is 1.6
8-1.6=6.4
The Premium we want will be 6.4%

2. says

Hi, May I know for chapter 20 Example 4 why must 1/0.13 not 0.13 at df@10% there ?

• says

Firstly the required return is 6% + 1.4 x (11% – 6%) = 13%. (I don’t know where you have got 10% from).

Secondly, since we are discounting a perpetuity, the discount factor is 1/r. So in this case we multiply by 1/0.13

(If you are unsure about perpetuities then watch the earlier lecture on investment appraisal methods)

3. says

I know you’ve shown us how to calculate Beta and you said that the examiner is not likely to ask us to calculate Beta but I was told by my workplace mentor that if beta is not given, then make a note to the examiner that I am assuming Beta is 1 and continue as such… Will this cost me any marks?

• says

You will either be given beta, or you will be asked to find beta by using the formula backwards (although this is not so likely).
You certainly will not be asked to calculate beta from other information – that is not in the syllabus for F9.

However – and this applies to all questions – if for any reason you cannot find a figure you need (probably because it is always harder in the exam with time pressure and panicking) then do invent a figure so you can still prove that you know what to do with it.
You will lose marks, but nowhere near as many marks as you would have lost if you just gave up on the question.

4. says

Thank you for helping, through your humble yet formidable teachings, a slow learner like me is seeing hope

5. says

sir, although i am demanding a lot but i know you are generous enough to cope with it…ECONOMIC ENVIRONMENT is a tough theory, If you can assist us by throwing a lecture…PLEASE its a humble request….

6. says

it’s always lovely listening to you sir, so you don’t have to feel guilty about your chat. and in fact it keeps me wide awake 😛
lots of sincere wishes for you, thanks a lot for your wonderful and generous services.

• says

I completely agree! – I was going to comment the same thing! Mr John always says sorry, I have to talk! I find it amusing when he discusses things, he removes my doubts and makes things clearer.

7. says

Thank you so much for these lecture, you have made it more simplier for me to understand. Thank you Open Tuition

8. says

i find these series very helpful to my success in f9. i am sure any body can pass with it. now am studying p4, i have go over it another time to solidify my basis.
thanks to the entire team of opentuition

9. says

This is beyond any human imagination, Indeed a revelation. You absolutely break the concepts like an Angel Joe. You are indeed a supernormal and exceptional blessing to us John. May the Almighty God add his abnormal blessings upon you- Great John.

10. says

there is no one i suppose more and mere better than you.. love the way you engaged us through out the lecture…..

11. says

CAPM is the most difficult f9 topic in the studytext for me…and now after viewing this lecture, its a piece of cake:-) thank you again john!