StudentShare solutions

# Financial Economics 2012- Quantitative Methods II, Statistics Project - Essay Example

## Extract of sample Financial Economics 2012- Quantitative Methods II, Statistics Project

The CAPM gives an understanding about the kinds of risks that affect the return through assessment of these risks. The model uses the beta of a specific security, the risk-free rate of return, and the market return to compute the required return of an investment to its expected risk. The CAPM Model and its uses The formula for the beta coefficient of stock is given by: Beta Coefficient of Stock (?) = ?rm / ?2m ?rm = the Covariance between the returns on asset i and the market portfolio ?2m = the Variance of the market portfolio This beta value serves as an important measure of risk for individual assets (portfolios) that is different from ?2m, it measures the non-diversifiable part of risk. It is an indirect measure which compares the systematic risk (risk which cannot be eliminated by portfolio diversification) associated with a company’s shares with the unsystematic risk (risk which can be eliminated by portfolio diversification) of the capital market as a whole. If a beta value of 1 is obtained, the systematic risk associated with the shares is the same as the systematic risk of the capital market as a whole. ...
= 0.016191667 - -2.205(0.006838583) = 0.03127. Hence the formula is given by: MOBIL =0.03127 – 2.205 RKFREE Discussion of the regression equations The two regression equations can be interpreted as follows: The first regression equation can be concluded that a unit increase in the market portfolio results into an increase of the monthly returns of Mobil Oil by 0.7135 units. Changing this into monthly percentages, a 10% increase in the market portfolio results into an increase of the monthly returns of Mobil Oil by 7.135%. In the second regression equation, a unit increase in return of the 30 day U.S. Treasury bills leads to a decrease of the monthly returns of Mobil Oil by 2.21 units. The bills are risk free and hence cannot be used to model expected returns. Hypothesis testing including Null vs Alternative Hypothesis The hypothesis to be tested in this analysis will employ a t-test. This t-test is used because we need to find whether there is a significant difference between the means of MOBIL and MARKET, and between MOBIL and RKFREE. The test will determine whether monthly returns of Mobil Oil (MOBIL) and the market portfolio (MARKET) have a similar mean using a 95% confidence level. Hypothesis 1 Null Hypothesis, H1: Mean of MOBIL = Mean of MARKET Alternative Hypothesis, H­0: Mean of MOBIL ? Mean of MARKET It is assumed that the variances are unequal. From the analysis, the computed t-statistic (0.2285) is not greater than the tabulated t-statistic (1.9801). Hence we fail to reject the null hypothesis and conclude that the mean of the monthly returns of Mobil Oil is equal to that of the market portfolio at 95% confidence level. The 95% confidence ...Show more

## Summary

Capital Asset Pricing Model Introduction An essential question in finance is how the risk of an investment should affect its return. It is for this reason that the Capital Asset Pricing Model (CAPM) was devised. Capital Asset Pricing Model (CAPM), is a theory that explains how asset pricing is affected in the marketplace…
Author : arne44
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Financial Economics 2012- Quantitative Methods II, Statistics Project"
with a personal 20% discount.
Grab the best paper

### Check these samples - they also fit your topic

Quantitative Methods and Analysis
Various antecedents to job satisfaction have been investigated over the years, including compensation, opportunity for advancement, work environment, and organizational environment (Schneider, Gunnarson, & Wheeler, 1992). This paper examines the relationship between employee benefits and job satisfaction.
4 pages (1000 words) Essay
Financial Project pt. II
11.90 From the development of one’s income and expense, or cash flow statement, one learned that our family’s financial life actually manifests that we try to live within our means. A portion of the excess (or net surplus) of about \$750, which is about 11.90% is of total net income is actually earmarked for some entertainment or recreational activities with the children on an irregular basis.
4 pages (1000 words) Essay
According to the paper, the valuable and resourceful insight, that quantitative method adds to the repertoire of business analysis, greatly influences the effectiveness of whole management activity. Businesses may have many divisions, in which the method needs to be implemented in order to ascertain the tendencies of the business environment.
3 pages (750 words) Essay
Quantitative methods
Quantitative research is the systematic empirical investigation of social phenomena by the use of statistical, mathematical or computational techniques. On the other hand, scientific research is the body of techniques used for investigating phenomena, acquiring new knowledge or rectifying and integrating previous knowledge and information.
3 pages (750 words) Essay
Statistics (Quantitative Methods) **High Standard Required
Their details were presented by the human resource department and all the ethical issues; participant’s data protection as well as the protection of vulnerable groups, according to
5 pages (1250 words) Essay
Quantitative Methods
There are different methodologies which are present in the quantitative analysis. The qualitative analysis is mostly used in the retail sector to analyze the consumer behavior and attitude
7 pages (1750 words) Essay
Quantitative Methods and Analysis
This paper examines the relationship between employee benefits and job satisfaction. It is expected that increase in employee benefits will be positively related with intrinsic,
4 pages (1000 words) Essay
Project II
Some excess amount are spent on maintenance of our vehicle, purchasing consumer goods, clothing, shoes, or school requirements that are not foreseen. It is good to
4 pages (1000 words) Essay
QUANTITATIVE METHODS WITH ECONOMICS
Based on these thoughts I decided to conduct some investigations. My source of data was basically the internet. From the internet I was able to get the prices of the machine, the cost of two extra bottles, cost per cylinder and also the cost per bottle of soda
4 pages (1000 words) Essay
ANOVA statistical method is termed as analysis of variance rather than the analysis of the mean due to the statistical inferences obtained in the research about the mean
8 pages (2000 words) Essay
Hire a pro to write
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Apply my DISCOUNT
Click to create a comment
Let us find you another Essay on topic Financial Economics 2012- Quantitative Methods II, Statistics Project for FREE!