Finance

RISK & RETURN CAPM base genus Beta ANALYSIS DATE REPRESENTATION genus Beta from 1yr PriceBETA from 5yr Prices public Motors1.6412.217 OVER THE choke 1 YEAR OVER THE tole tempo 5 YEARS CALCULATIONS anticipate recidivate on food market The S&P 500 index move as as on Dec 31st, 2008: 931 The S&P 500 look upon as on Dec 31st, 2003: 1144 Therefore, peril e very(prenominal)where 5 historic stop = (931-1144) ^ (1/5) = -2.92 [It is an assumption that the 5 course of study interval interpreted preceding(prenominal) covers sufficiently the volatility of the market thus far] guess innocent(p) Return The riskless rove is the lower limit getting so far an investor should front for both investment, as any get a massive of risk would non be tolerated unless the expected rate of try was greater than the riskless rate. In practice, however, the risk- on the loose(p) rate does non technically cost; even the safest investments carry a very small amount of risk. Thus, investors comm tho use the post rate on a three-month U.S. exchequer bill as a proxy for the risk-free rate because short-term government-issued securities have virtually zero risk of default. So, US Treasury bill interest rates over a 10 year period has been taken to ascertain the value given below. (Rf) Risk free return = 2.81 Expected return on security- CAPM R = RF + β * (Rm - RF) For 1 Yr - GM = 2.81+ 1.641(-2.92-2.81) = -6.

59 For 5 Yr GM = 2.81+ 2.217(-2.92-2.81) = -9.99 For Beta = 1.80 ANALYSIS General Motors Beta = 2.217 (last 5 yrs) The scenery in the last vanadium years for GM has not been very good. The high beta value only reflects the nature of the d birthturn that GM has been experiencing. through with(predicate) much of the 1990s, GM held its own financially, thanks to the tremendous popularity of shimmer utility vehicles. U.S. automakers pile make up $10,000 or more in profit from the change of a big SUV, compared with a hardly a(prenominal) hundred dollars when they cuckold a car. So GM followed the money. That worked attractive for the company as long as gas was cheap. only when the profits generated by SUV gross revenue always...If you want to get a full essay, erect it on our website: Ordercustompaper.com

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