Topic #4: Risk and Return

The Capital Asset Pricing Model (CAPM) is an accepted method of determining a risk-adjusted rate of return on equity and requires some basic inputs in order to perform the calculation.

Required:

1. a) Undertake some basic research to find out when the CAPM was first developed and by whom. Outline your findings including details of the journal / textbook most closely associated with the CAPM.
2. b) The CAPM requires the determination of a risk-free rate of interest (rf), with government securities most commonly used as a proxy for the risk-
3. free rate of interest. Outline whether it should be short / medium or long-term government securities that would best be used as the relevant
4. proxy for rf.
5. c) There are often considerable differences in the reported betas of individual company shares included on a securities / stock exchange.
6. Undertake some basic research to provide example of where information on company betas can be accessed. Select any 3 securities / stock exchange listed companies and discuss the reasons why they have differing reported betas.
7. That is, is it likely that companies operating across a number of industries will have different betas simply because of these different industries?

Please discuss this topic and explain your opinion by following the requirement.