L Pch10

Investments Chapter 10: The Capital Asset Pricing Model

Two Definitions Explained ,[object Object],[object Object],[object Object],[object Object]

The Basic Question of the CAPM ,[object Object]

Two Additional Concepts Introduced in the CAPM Framework ,[object Object],[object Object],[object Object],[object Object]

Assumptions Behind the CAPM ,[object Object],[object Object],[object Object],[object Object],[object Object]

The Opportunity Line: I ,[object Object],[object Object],[object Object],[object Object]

The Opportunity Line: II - Illustration Exhibit 10.1 Investment opportunities with risk-free asset Source: From Introduction to Investments , 2nd edn, by Levy. © 1999. Reprinted with permission of South-Western, a division of Thomson Learning: www.thomsonrights.com. Fax 800 730-2215.

The Capital Market Line: I ,[object Object],[object Object],[object Object]

The Capital Market Line: II ,[object Object],[object Object],[object Object]

The Separation Principle ,[object Object],[object Object],[object Object],[object Object],[object Object]

Separating Systemic from Nonsystemic Risk ,[object Object],[object Object],[object Object]

Definition of Risk When Investors Hold the Market Portfolio ,[object Object],[object Object]

Aggressive, Neutral and Defensive Assets ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

The Security Market Line: I ,[object Object],[object Object],[object Object],[object Object]

Expected Return on an Individual Security ,[object Object],[object Object],[object Object],Expected return on a security = Risk-free rate + Beta of the security × Market risk premium

The Security Market Line: II – The Risk Premium ,[object Object],[object Object],[object Object],[object Object]

The Security Market Line: III – Illustration Exhibit 3.4 Security line (SML) Source: From Introduction to Investments , 2nd edn, by Levy. © 1999. Reprinted with permission of South-Western, a division of Thomson Learning: www.thomsonrights.com. Fax 800 730-2215.

Estimating an Asset ’s Beta: I – The Characteristic Line ,[object Object],[object Object]

Estimating an Asset ’s Beta: II – The Characteristic Line Exhibit 10.4 Examples of the characteristic line Source: From Introduction to Investments , 2nd edn, by Levy. © 1999. Reprinted with permission of South-Western, a division of Thomson Learning: www.thomsonrights.com. Fax 800 730-2215.

Estimating an Asset ’s Beta: III – The Characteristic Line ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Estimating an Asset ’s Beta: IV – The Characteristic Line ,[object Object],Exhibit 10.8 Estimating the characteristic line for Microsoft

Estimates of  for Selected Stocks Stock Beta Bank of America 1.55 Borland International 2.35 Travelers, Inc. 1.65 Du Pont 1.00 Kimberly-Clark Corp. 0.90 Microsoft 1.05 Green Mountain Power 0.55 Homestake Mining 0.20 Oracle, Inc. 0.49

Theoretical Extensions of the CAPM ,[object Object],[object Object],[object Object],[object Object],[object Object]

Empirical Validity of the CAPM ,[object Object],[object Object],[object Object]

Empirically Testing the Predictions of the CAPM ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

CAPM Anomalies ,[object Object],[object Object],[object Object],[object Object]

Methodological Problems in Testing the CAPM ,[object Object],[object Object],[object Object],[object Object]

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