Respond to one selected question giving real-world examples to support all your answers.
- Select some stocks and identify the non-systematic or company-specific risks for these stocks. How can you quantify these risks for a comparison with systematic risks?
- What is the most significant difference between Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT)? Which model will you use to estimate the required rate of return on a stock and why?
- Comment on the limitations of the CAPM. What is the effect on the model if a particular assumption does not hold true?
- Examine the betas for some companies and try to explain them in terms of company performance. In other words, why does the stock of a company stand in a particular relationship to the overall market?
Write your answer to the question in approximately 600-800 words formatted in the current APA style. All written assignments and responses should follow APA rules for attributing sources.