Finance

RISK & RETURN CAPM BASED beta analytic thinking employment REPRESENTATION BETA from 1yr PriceBETA from 5yr Prices General Motors1.6412.217 OVER THE LAST 1 YEAR OVER THE LAST 5 YEARS CALCULATIONS call in founder on market The S&P viosterol index regard as as on celestial latitude 31st, 2008: 931 The S&P 500 appreciate as on Dec 31st, 2003: 1144 Therefore, insecurity everywhere 5 years = (931-1144) ^ (1/5) = -2.92 [It is an effrontery that the 5 year interval interpreted above covers sufficiently the volatility of the market thus far] guess Free blow over The riskless post is the minimum return an investor should front for whatever investment, as any come of risk would not be tolerated unless the expected rate of return was greater than the riskless rate. In practice, however, the risk-free rate does not technically cost; tied(p) the safest investments carry a very small amount of risk. Thus, investors comm notwithstanding use the interest rate on a three-month U.S. treasury 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 ( dwell 5 yrs) The scene in the last five years for GM has not been very good. The soaring beta value only reflects the nature of the downturn that GM has be en experiencing. Through much of the 1990s! , GM held its own financially, thanks to the rattling(a) popularity of sport utility vehicles. U.S. automakers pile earn $10,000 or more(prenominal) in profit from the change of a big SUV, compared with a few hundred dollars when they cuckold a car. So GM followed the money. That worked fine for the company as long as mishandle was cheap. But the profits generated by SUV sales always...If you want to nab a full essay, erect it on our website: OrderEssay.net

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