1 UNIVERSITY OF ESWATINI DEPARTMENT OF ACCOUNTING AND FINANCE ASSIGNMENT PAPER - ACADEMIC YEAR 2020/2021 ASSIGNMENT TWO (2) PROGRAMME OF STUDY : Master of Business Administration YEAR OF STUDY : Year...

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Answered 14 days AfterSep 13, 2021

Answer To: 1 UNIVERSITY OF ESWATINI DEPARTMENT OF ACCOUNTING AND FINANCE ASSIGNMENT PAPER - ACADEMIC YEAR...

Sugandh answered on Sep 16 2021
153 Votes
8
Economics
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Contents
Question 1    1
1.1    1
1.2    2
2.    3

3.    3
Question 2    4
2.1    4
2.2    4
2.3    5
References    6
Question 1
1.1
1. As per CAPM, expected return of stock A = Rf + (Rm - Rf) * beta = 5 + (11 - 5) * 1 = 11%, Expected return of stock B = 5 + (11 - 5)* 1.5 = 14%
2. Alpha Value of the Stock will be for A = 12 % - 11% = 1%
Alpha Value of the Stock will be for B = 13 % - 14 % = - 1%
3.
Stock’s risk-return point on the Security Market Line (SML) and show
both alphas on the SML graph.
1.2
1. The computation can be stated as follows:-
Sharpe measures of Performance for Ben’s
Sharpe Ratio = Expected Return on Stock/ Investment - Return on Risk free asset (T-Bill) / Standard Deviation of return on Stock/ investment = 35 – 6 / 42 = 0.69 :1
Market Return = 28-6 / 30 = 22/30 = 0.73:1
Jensen (Alpha) measures of Performance for Ben’s
(Lee, 2021)
Treynor measures of Performance for Ben’s
Formula = (Expected return on Stock/Investment - Return in risk free asset( T-Bill)) /
Expected change in rate of return on Stock i associated with one unit change in market return .
Substituting...
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