Financial Modeling
Fundamentals
Data Collection
Graphing
Rates of Return
Regression
CAPM
CAPM
CAPM
Financial Markets: A Practicum
CAPM
Rule #4:
 Separate Tab
 Manage Sheets
 Label it CAPM
 Set up Titlebar and Titles
Rule #6:
 Format for Ease
of Use
X axis is Beta
Y axis is Expected Return
Financial Markets: A Practicum
Security Market Line
 All data is relayed or calculated; if you use a
different company or a different index then
these will all change automatically
=Average(MarketModel!B:B)*12
=Data!A1
=Beta
Financial Markets: A Practicum
Security Market Line

E[R] = Rf + β (RM – Rf)
β
Rf
E[R] = Rf + β (RM – Rf)
RM
Financial Markets: A Practicum
Security Market Line
 Use XY (Scatter)
 XY spaces the x axis according to the x value
 Line chart spaces the x axis data evenly,
regardless of value
 X axis is β
 Y axis is E[R]
 Observed
 Normal as indicated by the CAPM
Financial Markets: A Practicum
© Oltheten & Waspi 2012
Security Market Line
 Excel default chart
Edit data series 1,
observed, to marker only
Financial Markets: A Practicum
Edit, data series 2,
predicted, to line only
© Oltheten & Waspi 2012
Format
 Add data labels with [Chart Tools]
[Layout][Data Labels]
Error Bar
Financial Markets: A Practicum
Format
 The error bar is part of Chart Layout
 Select the observed series
 [Chart Tools][Layout][Error Bars]
[More Error Bar Options]
Financial Markets: A Practicum
© Oltheten & Waspi 2012
Format
• We need a negative
error bar to drop a
line from the marker
equal to the –ve
abnormal return.
Financial Markets: A Practicum
© Oltheten & Waspi 2012
Format
 Excel defaults to both horizontal and
vertical error bars. Select and delete the
horizontals
Financial Markets: A Practicum
©&
Oltheten
& Waspi 2012
© Oltheten
Waspi 2012
Format
Financial Markets: A Practicum
© Oltheten & Waspi 2012
CAPM