Hi ppl I wanted to introduce myself but I didn't find a board to do that, so I will say hello here, and second that I will be very grateful if anyone can give me some help on this question of the Capital Asset Pricing Model. I am trying very hard to learn this, working all day and all night, and I think I understand it, but there are terminology which I am not finding clear explanations for, and also I am trying to do some Excel calculations which are causing me some problems.
My first question is: If the Rf return is too high, then does this mean the CML and Efficient Frontier won't cross?
OK So I am trying to draw the Capital Market Line, I have managed it successfully when I divided Rf/365 (4.999% - UK govt 5 year gilt 2007-2012, taken from "yield at average accepted price"), and this worked fine, I calculated Efficient Frontier, CML, Sharpe Ratio and Indifference Curve. But then when I tried to find Portfolio Beta I realized this would not work as I had monthly equity returns and dialy Rf returns. So then I did 4.999%/12 and now the lines DO NOT CONVERGE even though it is the same shares and the same formulas! It is driving me crazy I have spent like a week with this now.
Second: is "yield at average accepted price", yield to maturity, or is it yearly yield. So should I do 4.999%/12 or 4.999%/60 (as in 5 years = 60 months). Sadly I don;t have a great teacher who si teaching me all this, I understand all the logic but nobody is giving me good info and I am wasting a lot of time on trying out every possible way, until I find the right answer.
I would thank so much if anyone can help, my best regards to you all!
PS here is the UK DMO link from where I got the Rf asset, go to April 2007 page 3:
UK Debt Management Office
My first question is: If the Rf return is too high, then does this mean the CML and Efficient Frontier won't cross?
OK So I am trying to draw the Capital Market Line, I have managed it successfully when I divided Rf/365 (4.999% - UK govt 5 year gilt 2007-2012, taken from "yield at average accepted price"), and this worked fine, I calculated Efficient Frontier, CML, Sharpe Ratio and Indifference Curve. But then when I tried to find Portfolio Beta I realized this would not work as I had monthly equity returns and dialy Rf returns. So then I did 4.999%/12 and now the lines DO NOT CONVERGE even though it is the same shares and the same formulas! It is driving me crazy I have spent like a week with this now.
Second: is "yield at average accepted price", yield to maturity, or is it yearly yield. So should I do 4.999%/12 or 4.999%/60 (as in 5 years = 60 months). Sadly I don;t have a great teacher who si teaching me all this, I understand all the logic but nobody is giving me good info and I am wasting a lot of time on trying out every possible way, until I find the right answer.
I would thank so much if anyone can help, my best regards to you all!
PS here is the UK DMO link from where I got the Rf asset, go to April 2007 page 3:
UK Debt Management Office