Finance

RISK & RETURN CAPM BASED beta summary leave REPRESENTATION BETA from 1yr PriceBETA from 5yr Prices General Motors1.6412.217 OVER THE LAST 1 YEAR OVER THE LAST 5 YEARS CALCULATIONS bode wages on market The S&P euchre index regard as as on declination 31st, 2008: 931 The S&P 500 prise 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 kick in The riskless assess is the minimum return an investor should front for either 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; still the safest investments carry a very small amount of risk. Thus, investors comm clear along use the interest rate on a three-month U.S. treasury bil l 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 ( destruction 5 yrs) The scene in the last five years for GM has not been very good. The senior high beta value only reflects the nature of the downturn that GM has been experiencing. Through much of the 1990s, GM held its own financially, ! thanks to the wonderful popularity of sport utility vehicles. U.S. automakers pile earn $10,000 or to a greater extent 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 attack was cheap. But the profits generated by SUV sales always...If you want to get a full essay, erect it on our website: OrderEssay.net

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