Product Overview

This case examines the investment strategy decisions of a student portfolio management team in April 2017. The case is designed to provide a context for an introduction to the intuition of the Capital Asset Pricing Model (CAPM) and practical estimation methods. Students are invited to make investment recommendations based on the risk-return characteristics of a set of stock-investment alternatives. The case discussion surrounds the tension with respect to the relevant measure of risk and the method for estimating benchmark returns. The case equips students with the materials for estimating a CAPM-based benchmark for each security using market data.

Learning Objectives

Develop an understanding of idiosyncratic risk, systematic risk, and the benefits of diversification to motivate beta as a relevant risk metric. Introduce the CAPM as viable model for estimating the cost of equity. Build student judgment on appropriate methods to estimate the CAPM parameters using market data. Consider the portfolio allocation decision in investment management. Discuss the fundamental concepts of market efficiency.