EVALUATION OF CAPM ON MALAYAN BANKING BERHAD (1155.

KL)
CAPM is a model that describes the relationship between risk and expected return and is commonly used in the
pricing of risky securities. Although there are many disadvantages and weakness in the model, yet there is still
no model that is ready to replace the model when it comes to pricing securities. The model was developed by
Jack Treynor (1961, 1962), William Sharpe (1964), John Lintner (1965) and John Mossin (1966) independently.

A 5 year performance analysis was performed on the stock (Malayan Banking Berhad 1155.KL). From the data
observed, systematic risks are market risk that cannot be diversified away such as interest rates, recessions and
war. From the R Squared, Malayan Banking Berhad has systematic risks of 50.46% and unsystematic risk of
49.54%, meaning that the security holds a 50.46% of risks that obeys the market (KLSE) and it almost
impossible to avoid such risks. Strategic allocation or hedging can only mitigate those un-diversifiable risks.
With the adjusted beta calculated as 0.9681, shows that 10% boost in the market (KLSE) will lead to 9.681% of
rise in the security, and vice versa. Based on the CAPM, we derived that investment on Malayan Banking
Berhad will at least pour a 15.91% of return. With the Average Price Target determined by Analyst is RM11.16
(Current Price: RM9.68, Expected Return is 15.29%), Malayan Banking Berhad is definitely properly valued
at this moment. Investors would highly to be in a favourable position upon investing. (Please refer to the
attached excel file for all the calculations)

Sources: http://klse.i3investor.com/quoteservlet.jsp?sa=ss&q=MAYBANK

By Jeevan Kumar A/L Rajah

EVALUATION OF CAPM ON MALAYAN BANKING BERHAD (1155.KL)

SUMMARY OUTPUT
Regression Statistics
Multiple R

0.710329623

R Square

0.504568173

Adjusted R Square

0.495876386

Standard Error

0.37595853

Observations

59

ANOVA
df

SS

Regression

Residual

57

Total

58
Coefficients

Intercept

0.130287391

X Variable 1

0.95235221

adjusted

0.968075981

CAPM

15.91%

Systematic Risk

50.46%

Diversifiable Risk

49.54%

MS

8.205228717 8.205228717 58.05114705

Significance F
2.95611E-10

8.05665453 0.141344816
16.26188325
Standard Error

t Stat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

0.051511976 2.529264113 0.014220979

0.027136439 0.233438343

0.027136439

0.233438343

0.124994871 7.619130334

0.702054299 1.202650121

0.702054299

1.202650121

2.95611E-10