Risk & Return and the CAPM

Risk & Return and the CAPM
1. Risk & Return and the CAPM.

Based on the following information, calculate the required return based on the CAPM:

Risk Free Rate = 3.5%

Market Return =10%

Beta = 1.08

2. Holding Period Return

Based on the following information calculate the holding period return:

P0 = $11.00

P1 = $11.40

D1 = $1.02

3. Risk and Return, Coefficient of Variation

Based on the following information, calculate the coefficient of variation and select the best investment based on the risk/reward relationship.

Std Dev. Exp. Return

Company A 7.4 13.2

Company B 11.6 18.9

4. Sources of Risk & Diversification – convertible bond.

Address each source of risk from the portfolio perspective and how diversification impacts them.

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