CHE249H1 Lecture Notes - Lecture 6: Arbitrage, No. 5 Group Raf, Capital Asset Pricing Model

• School: UTSG
• Department: Chemical Engineering and Applied Chemistry
• Course: CHE249H1
• Professor: Yuri Lawryshyn

Document Summary

Can invest cad at rcc , rf ,cad which is equivalent to 1. 055 usd at rcc , rf ,usd. 1cad er cc, rf , cad=1. 055 usd ercc , rf , usd. According to capm, e[ rc]=r f + c(e[ r m] r f) E [ rc]=1. 5 + 0. 96 ( 3. 5 1. 5 )=3. 42 / year. So for 3 years, this compounded rate is the company 3 years from now is 1. 106 35=$ 38. 71 ( 1+0. 0342)3=1. 106 , which means the expected price for. , so the enire return comes from the dividend. Now we solve for share price : share price= dividend. Therefore a fair price for a share is . 51. E [ rc]=r f + c(e [ r m] r f) , where the return comes from the dividend and the stock price appreciaion, but the dividend can essenially be taken out from the return. E [ rc]=1. 5 +1. 2 ( 5 1. 5 )=5. 7.