StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Nobody downloaded yet

Capital Asset Pricing Model and Recent Developments - Assignment Example

Comments (0) Cite this document
Summary
In the paper “Capital Asset Pricing Model and Recent Developments” the author analyses Capital Asset Pricing Model (CAPM), which has been a well-acknowledged methodology among the finance professionals as well as the investors since long. CAPM or Capital Asset Pricing Model is the basic model…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER98.5% of users find it useful
Capital Asset Pricing Model and Recent Developments
Read TextPreview

Extract of sample "Capital Asset Pricing Model and Recent Developments"

Download file to see previous pages It is the most essential aspect of any venture. The important considerations that finance has within it, is that of profit and loss. The business as a whole or a person as an individual always strives to earn a profit. To earn a profit, one has to undertake uncertainties that are known as risks. Therefore, profit is also known as the reward for incurring risks.
In the present world of today, the capital market has come up as a viable investment opportunity for individuals all across the globe. People invest their hard money only with the expectation to earn profit or return. The stocks of various companies that are traded in the capital market are also known as capital assets. Prior to investing in any of the stock or capital asset, any rational investor would try to calculate the expected return that he might earn from the investment. 
CAPM or Capital Asset Pricing Model is the basic model that says about the expected return of individual security of the portfolio is dependent on the risk-free return and the market risk i.e. Beta. In simple words, the model is used while pricing the risky stocks as it depicts the relationship between the risk of the stock and the expected return of that stock. Among the many notable scholars who have significant contributions in the development of the model, Jack Treynor and William Sharpe are the most popular. The later, i.e. William Sharpe even received the Noble Prize in Economics for his contribution to the development in the Capital Asset Pricing Model. ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Capital Asset Pricing Model and Recent Developments Assignment - 1, n.d.)
Capital Asset Pricing Model and Recent Developments Assignment - 1. https://studentshare.org/business/1729970-the-capital-asset-pricing-model-capm-is-a-very-useful-model-and-it-is-used-widely-in-the-industry-even-though-it-is-based-on-very-strong-assumptions-discuss-in-the-light-of-recent-developments-in-the-area
(Capital Asset Pricing Model and Recent Developments Assignment - 1)
Capital Asset Pricing Model and Recent Developments Assignment - 1. https://studentshare.org/business/1729970-the-capital-asset-pricing-model-capm-is-a-very-useful-model-and-it-is-used-widely-in-the-industry-even-though-it-is-based-on-very-strong-assumptions-discuss-in-the-light-of-recent-developments-in-the-area.
“Capital Asset Pricing Model and Recent Developments Assignment - 1”. https://studentshare.org/business/1729970-the-capital-asset-pricing-model-capm-is-a-very-useful-model-and-it-is-used-widely-in-the-industry-even-though-it-is-based-on-very-strong-assumptions-discuss-in-the-light-of-recent-developments-in-the-area.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Capital Asset Pricing Model and Recent Developments

Capital asset pricing model

...? and Section # of Capital Asset Pricing Model is a tool extensively used to value assets in the financial sector. It has been extensively used in calculating the required return of investment products. The capital asset pricing model was introduced in the 1960s by William Sharpe; since then it has been considered as the cornerstone of predicting the required return on an investment. Required Return: Risk free rate + ? (Average Market Return –Risk free rate) Where ? is the beta value of the financial asset The basic assumptions of this model pose as disadvantageous for this model to be considered as a perfect representative of required return calculation. One of its basic assumptions is that investors are holding diversified portfolios...
1 Pages(250 words)Essay

Capital Asset Pricing Model

...Capital Asset Pricing Model Purpose of the Paper: The purpose of the paper is to understand and workout the cost of equity of a given company. The cost of equity of a company is associated with risk associated in investing in that company. Higher the risk associated in equity investment, higher will be the cost of equity for shareholders. Capital asset pricing model can be employed to work out the cost of equity. The minimum rate of return that shareholders would ask for is also known as the cost of equity. Answer 1. The company under consideration is Nvidia. The systematic risk coefficient is available from the site yahoo.com, which shows beta of the company, Nvidia as 1.54 (Key Statistics1) The current Yield to Maturity (YTM...
5 Pages(1250 words)Research Paper

Capital Asset Pricing Model

...?Capital Asset Pricing Model Introduction The Capital Asset Pricing Model (CAPM) was initially developed by Harry Markowitz in 1952. The model was later on modified by other practitioners including William Sharpe. This theoretical framework is widely used to describe the relationship between expected rate of return and possible risk elements while addressing the pricing of risky securities. This concept holds that an investor’s time value of money and level of risks must be considered while rewarding him. These factors are generally computed using a risk measure called beta. Although the CAPM is widely used for anticipating the feasibility of an investment decision, this model has a number of corporate applications also. This model has...
7 Pages(1750 words)Essay

Capital asset pricing model

...? CAPM by + A) Discuss the main theoretical limitations of the Capital asset pricing model. Capital asset pricing model assumptions are unrealistic and deviate far from the real life happenings. The model assumes that short-term government securities are risk free. It is difficult to find risk free securities. Government securities are unlikely to be defaulted but factors such as inflation creates uncertainty on the real rate of return. The model also assumes that the lending rate and the borrowing rate are equal. In practice, these two rates differ and therefore, the model will not hold in a real life scenario. The model also assumes that there is no transaction cost, taxes or holding period of the securities. However, these costs exist...
4 Pages(1000 words)Essay

Capital Asset Pricing Model

...?Discuss the main theoretical limitations of the CAPM. The Capital Asset Pricing Model (CAPM) is a model that shows the relationship between risk of an asset and its expected return. Its major limitations stem from its methodological assumptions. One of the assumptions it makes relates to the relative volatility of investment. The CAPM model therefore relies on the ability to measure market volatility as a whole. With several possible investments available in the market, the model assumes that one can accurately assess the volatility of each of these investments. This is impossible. Usually, the overall volatility of the market is measures through proxies when implementing this model, for instance, the use of FTSE index. Such proxies...
4 Pages(1000 words)Assignment

Capital Asset Pricing Model

... pricing model is one option that most financial analysts prefer. The succeeding discussions will tackle on the use of capital asset pricing model as basis for discounted multi-period risky cash flows. Capital Budgeting Models The prevalence of investments has led to several ideas particularly on the side showing benefits attributed to such activities. For investors, it is important to determine the exact amount that will be gained from the investment. Essentially, there were several methods developed to address this need. Taggart (1999) created capital budgeting analysis model that makes use of the discounted cash flow. Accordingly, this model enables investors to forecast the values of cash flow components. Among the models...
10 Pages(2500 words)Research Paper

Capital Asset Pricing Model

The underlying theme associated with CAPM is investor’s relationship and the advantages which an investor can attain by the application of this model. The investors are linked in two ways with this technique; one is the time value of money and the other is the risk factor involved in a project. The time value of money can be depicted using the risk-free (Rf) rate in the formula which can then be compensated with the investors for placing money in any investment after a certain period of time. The risk part of CAPM formula is used for representation of risk and calculates only the amount of compensation which any investor can undertake for facing any additional risk. These financials can be calculated using the risk measureme...
8 Pages(2000 words)Essay

The Capital Asset Pricing Model is a very useful model and it is used widely in the industry even though it is based on very strong assumptions. Discuss in the light of recent developments in the area

...The Capital Asset Pricing Model Introduction Since the coming of the CAPM, there have been several researches and literature which have criticised its usefulness in the modern business environment. This is because most such commentators believe that the model heavily rely on assumptions rather than laws (De Brouwer, 2009). The current paper therefore seeks to examine some recent developments in the area of corporate finance and the use of the CAPM to see how the model responses to existing criticisms. The paper take the approach of comparing the weaknesses and limitations of CAPM with its usage in recent developments to see if it can be considered a credible and reliable model for asset pricing and forecasting for today’s dynamic business...
7 Pages(1750 words)Essay

Capital Asset Pricing Model

...CAPITAL ASSET PRICING MODEL Affiliation Capital Asset Pricing Model The capital asset pricing model (CAPM) has a number of components that determine the individual stock. The components that determine in entirety the individual stock and hence the CAPM they include the risk free rate in the CAPM, the Beta of the security, the expected market return and the equity market premium. The risk free rate is the government bond ideally, that has a fix ten years. The Beta is the true measure of the risk that is in the stock that one has invested on. With the risk in it, measure the volatility of the investment. It is in this Beta that determines the wave of up and down the price of stock will oscillate. The expected market returns are all...
1 Pages(250 words)Assignment

Capital Asset Pricing Model

...Capital Asset Pricing Model Table of Contents Introduction 3 Assumptions of CAPM 4 Efficient Frontier with Riskless Lending and Borrowing 5 EfficientPortfolio with Introduction of Lending 6 Efficient Frontier with Borrowing and Lending 9 Merits of the Capital Asset Pricing Model (CAPM) 10 Demerits of CAPM 11 Assigning Values to the CAPM 11 Use in Investment Appraisal 11 Controversy to the SML 11 Historical Evidence 12 Empirical Approach towards the CAPM 13 Advantages of Fama-French over CAPM 14 Shortfalls of Fama-French Model 15 Arbitrage Pricing Approach to CAPM 16 APT vs. CAPM (Portfolios) 16 APT vs. CAPM (Individual securities) 17 Comparative Analysis of CAPM and APT 17 Relative Merits of CAPM 18 Conclusion 19...
12 Pages(3000 words)Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Assignment on topic Capital Asset Pricing Model and Recent Developments for FREE!

Contact Us