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Capm in Excel
Capm in Excel
Where:
R e = the return required by investors on a stock
R m
= the average return on the market
Alternative Hypothesis(H ):
A
We are 99% confident that Riyad returns are affected by the market.
.
Interpreting Beta
If R m increase by 1% R Riyadbank increase by 0.881%
If R increase by 2%
m R riyadbank increase by 1.761 %
R
(2 X 0.881 %) m
If R decrease by 5%
m R riyadbank
decrease by 4.403%
(5 X 0.881 %)
Interpreting Beta
Beta of the market is always = 1.0
If the stock beta > 1.0, the stock is more risky than
average
If stock beta < 1.0, the stock is less risky than average
Thus, Riyad Bank is less risky than average:
0.8177 < 1.0
Thus, when the average return on TASI is negative
-0.003, the return on Riyad Bank must be negative
as well. However, lower in magnitude.
Compare Beta with Analysts’ report
Get the Risk Free Return
Get the Risk Free Return
Calculating the Required Return on Riyad
Bank using CAPM
Required Return on Riyad Bank using CAPM
Results Interpretation
The required return on Riyad is in negative because
the market return is in negative. This is because Riyad
Bank is has a positive relationship with the market
returns. However, the decrease is lower in magnitude
because β is lower than 1.0 which means Riyad Bank is
less risky.
Thanks for Listening
:Prepared by
Rawaa Muhandes
Rawaa_86@hotmail.com