Additionally, Beta is an integral part of the Capital Asset Pricing Model (CAPM). The CAPM is used to calculate the expected return on a security. The formula for the CAPM is as follows:Where:Ra = Expected return of the security Rrf = Risk-free rate Ba = Beta (β) of the asset Rm...
You can use Microsoft Excel or Google Sheets for calculating beta. You can calculate a stock's beta by constructing arrays of prices (usually daily closing prices) and stock returns ((closing stock price – previous closing)/previous closing) of the stock and an overall market index for a se...
As long as beta of a given asset is defined as the relationship between the Marginal VaR and the beta of a given asset can be expressed as follows Example cont’d: Now we can compute the marginal VaRs for each asset within the portfolio. First, we compute betas by (3.2.4)Image 3.2....
The alpha calculation formula can be used first by calculating the expected rate of return of the portfolio based on the risk-free rate of return, a beta of the portfolio, and market risk premium, then deducting the result from the actual rate of return of the portfolio. Alpha of portfolio...
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Thecapital asset pricing modelis a common and fairly simple formula that is used to compare investments. The capital asset pricing model (CAPM) is used to determine an asset's expected return based on its beta value. When beta is less than 1.0, the stock's CAPM value will be lo...
The formula of the covariance considers the two variables (r1,r2) at the same time, and it is as follows: Cov(r1,r2)=1N∑i=1N(r1i−μ1)⋅(r2i−μ2) withμ1andμ2the expected (average) returns of the first and the second assets, respectively. ...
Calculate the beta for this company. What is required return? Calculate the portfolio's standard deviation? Formula to find the portfolio return for the year Assume that the standard deviation for the portfolio of the 5 stocks is 14.25% and that the standard deviation for the market portfolio ...
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If you don't use Excel, you can use a basic formula to calculate the expected return of the portfolio. Calculating Total Expected Return in Excel First, enter the following data labels into cells A1 through F1: Portfolio Value, Investment Name, Investment Value, Investment Return Rate, ...