CAPM Flashcards
1
Q
Sharpe ratio formula
A
Sp=(rp-rf)/Gp
2
Q
What does Sharpe ration show?
A
Excess return over unit of TOTAL risk.
3
Q
What does the Treynor measure show?
A
Excess return per unit of Systematic risk.
4
Q
Treynor index
A
Tp=(rp-rm)/Bp
5
Q
What does Modigliani 2 measure show?
A
Difference between returns if we adjust risk.
6
Q
MM2 formulas
A
MM=ra-rm (clope CAL - slope CML)
MM=(ra-rf)*Gm/Ga - (rm-rf)
7
Q
L>0
A
undervalued (above the SML line)
8
Q
L<0
A
overvalued (Below the SML line)
9
Q
Appraisal Ratio
A
AR=Li/G(ei)
10
Q
what does AR show?
A
Excess return over diversifyable risk
11
Q
R 2=…
A
R 2=p im 2
12
Q
R 2 formula
A
R2 = (Bim2*Gm2)/Gi2
13
Q
what does R2 mean?
A
R2 - proportion of a firm’s risk that is explained by the MARKET.
14
Q
What is (1-R2)?
A
proportion of FIRM- specific risk.
15
Q
Bim=…
A
Bim=Gim/Gm2
