Q15. http://www.actuariesindia.org/downloads/exampapers/may2014/QP/CT2_QP.pdf SOLUTION http://www.actuariesindia.org/downloads/exampapers/May2014/SOL/CT2_SOL.pdf I HAVE'NT UNDERSTOOD THE SOLUTION..I GOT THE RISK FREE RATE..BUT AFTER THAT WHATEVER IS DONE IN THE TABLE IS A COMPLETE BOUNCER PLEASE CAN YOU EXPLAIN WHAT IS DONE IN EACH COLUMN?
The table is self explanatory - it has good headings - basically it calculating the covariance between the company and the market using the standard covariance formula. You should be able to reproduce this in Excel quite quickly?
Hi, I have got what the table does, but after that to calculate the cost of capital, the market return rate is taken to be 10%. Where does this come from? Isn't market return rate same as Rm which is computed as 0.833% in the table? Thanks for the help!
10% is the total of the 12 months market return while 0.833% is the monthly average. Average is used to calculate the beta factor and 10% is used as the overall market return, ie. Rm
