CAPM model

 

 

Using the CAPM model, assuming a risk-free rate of 1% and a expected market return of 10%, choose 4 stocks of your choice and calculate the expected return of each stock. Additionally, assuming that the 4 stocks make up your portfolio and have a weighting of 10% for the 1st stock, 20% for the 2nd stock, 30% for the 3rd stock, and 40% for the 4th stock, what is the Beta and the expected return of the portfolio?

 

Sample Solution

The capital asset pricing model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital. Investors expect to be compensated for risk and the time value of money. The risk-free rate in the CAPM formula accounts for the time value of money. The other components of the CAPM formula account for the investor taking on additional risk. The goal of the CAPM formula is to evaluate whether a stock is fairly valued when its risk and the time value of money are compared to its expected return.

John Searle’s popular “Chinese Room” contention that was examined in Chapter 2 of How the Mind Works, was one of the most intriguing contentions to show cases of man-made reasoning. Fundamentally the case as that PCs would be able and will basically attempt to dominate the demonstration of reasoning. The contention depended on how Searle sees himself in a room alone and is attempting to follow and jump aboard with a PC that will be that is answering Chinese characters. In any case, Searle realizes he can’t get a handle on or see any of it, yet he endeavors to control numbers and an assortment of images to deceive those beyond the room. His control of such numbers and images, produces Chinese characters, which permits him to persuade those external the room that there is somebody who can really speak Chinese inside the room. Searle accepts that however the PC seems to figure out what is happening, in all reality it really doesn’t grasp it. It tends to be inferred that motivation behind this contention was the disprove the point that a PC can work all alone. That’s what searle trusts on the off chance that a man can’t comprehend Chinese in any event, when he was controlling numbers and images, then, at that point, neither can PCs. A PC is no human and can never be like one.

Pinker’s reaction to the “Chinese room” contention is hesitant. He says that Searle has expressed nothing to do with something that can be deductively important. Furthermore, that Searle is only expressing about “comprehend”. Truth be told, it is discussed in abroad way, which isn’t excessively clear or brief. Pinker says that people are loaded up with meat, while PCs are loaded up with data. People need the right fastens to be pushed before he/she can precisely deal with data. Also, PCs need the right data while handling in look for other data. Both need some kind of push to find lasting success and without that push people and PCs both can’t work and “comprehend”. Pinker feels that we can be j

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