Part 2: Using the data, you collected in part 1, complete the following schedule. I recommend using Excel Spreadsheet. Beta Beta Avg MB Avg Avg MB PE 1 PE 2 PE 1 1 2 Beta 2 MB HD WMT COST CVS AMZN Part 3: (This Part should be completed after Week 13) Using a market return of 12.5%, a risk free rate of 2.5%, and the average beta from part 2, compute the expected CAPM Return and the Treynor Measure as described below. Complete the following schedule: Treynor Measure CAPM Return HD WMT COST CVS AMZN A. Treynor introduced the concept of the security market line, which defines the relationship between portfolio returns and Beta. Beta is a measure of the volatility of the portfolio relative to the market portfolio and assumes all unsystematic risk has been diversified away. The greater the line's slope, the better the risk-return tradeoff. B. The formula for Capital Asset Pricing Model (CAPM): E(Ri) = required return = Rp + (Rm - Rt) * Beta; C. The Treynor measure is also known as the reward-to-risk ratio, is defined as: T} = (Ri - Rt) / Beta The Treynor measure indicates the security's actual risk premium return (Ri - Rf) per unit of risk. You could also measure the excess risk adjusted portfolio return as Excess risk adjusted portfolio return = Ri - E(RI) Part 2: Using the data, you collected in part 1, complete the following schedule. I recommend using Excel Spreadsheet. Beta Beta Avg MB Avg Avg MB PE 1 PE 2 PE 1 1 2 Beta 2 MB HD WMT COST CVS AMZN Part 3: (This Part should be completed after Week 13) Using a market return of 12.5%, a risk free rate of 2.5%, and the average beta from part 2, compute the expected CAPM Return and the Treynor Measure as described below. Complete the following schedule: Treynor Measure CAPM Return HD WMT COST CVS AMZN A. Treynor introduced the concept of the security market line, which defines the relationship between portfolio returns and Beta. Beta is a measure of the volatility of the portfolio relative to the market portfolio and assumes all unsystematic risk has been diversified away. The greater the line's slope, the better the risk-return tradeoff. B. The formula for Capital Asset Pricing Model (CAPM): E(Ri) = required return = Rp + (Rm - Rt) * Beta; C. The Treynor measure is also known as the reward-to-risk ratio, is defined as: T} = (Ri - Rt) / Beta The Treynor measure indicates the security's actual risk premium return (Ri - Rf) per unit of risk. You could also measure the excess risk adjusted portfolio return as Excess risk adjusted portfolio return = Ri - E(RI)
