Pricing model (CAPM) is a widely accepted, though controversial, theory

by | Dec 16, 2021 | Theories

Capital asset pricing model (CAPM) is a widely accepted, though controversial, theory of asset pricing in the capital market. According to CAPM, the expected return of any asset in the capital market is a linear function of the expected return on the whole market and the expected return of the risk-free rate. Mathematically, the model is stated as per Equation 1:
E(Re) = E(RFR) + β *E(Rm – RFR)

Where E(Re) is the expected rate of return on a specific asset, E(RFR) is the expected risk-free rate, β is the sensitivity of the stock return with respect to the overall market return, and E(Rm – RFR) is the expected capital market risk premium.

Empirical verification of CAPM is done by running a regression model of historical returns of stocks against historical returns of the overall market.

In this CLA 2 assignment, your professor will assign you the stock of a publicly traded company to conduct the following:

  1. Download the stock’s last 10 years monthly price history from yahoo finance or other sources.
  2. Select a broad stock market index, such as the S&P 500 Index or the Russell 3000 Index, etc. and download its last 10 years of monthly price history.
  3. Use the adjusted closing prices of the stock and the index and calculate the monthly rate of return of each.
  4. Consider the stock’s monthly return as the dependent variable and the index’s monthly return as the independent variable and run the following regression model:
    Re = α + β*Rm + ε

Where Re is the realized monthly rate of return of your stock, Rm is the realized monthly rate of return on the overall capital market, and ε is the error term.

  1. After estimating the regression coefficients of equation (2) through the ordinary least squares (OLS) method, conduct a test of hypothesis and determine if the estimates of α and β are statistically significant at the 5% level and report their t statistics and p values.
  2. Determine if the F value for the correlation coefficient is statistically significant at the 5% level.
  3. What is your interpretation of the R-square value? Explain to what extent your regression estimates can predict future return of your stock against your index’s movements.
  4. What is the estimate of RFR?
  5. Calculate the value of the error term for each year and construct the histogram of the error terms.
  6. Using the Explore feature in SPSS (in Excel: Data Analysis, Regression, Normal Probability Plots), conduct a test for normality of the error terms and exhibit the normality plot.
  7. Does the result of the test for normality of the error terms affect the validity of your regression model? Explain.
  8. Present an APA-formatted write-up of your finding in one paragraph.

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Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell. 

In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.


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God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.

Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.

To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.

 

References

Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.

Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.

Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.

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