## CHECK THESE SAMPLES OF Portfolio Theory and the 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

The average cost of capital in the S&P 500 is 10.2 percent. It can be said that the cost of capital of Nvidia is almost on par with S&P 500 companies. It is pertinent to note that risk free rate varies time to time depending upon the yield of government Treasury bill. Usually, it is found to give 3% in normal conditions and based on this treasury rate, the cost of equity can also be calculated using the same formula

Rj = RF + βj [RM - RF]

It is assumed that difference between the expectation on rate of return for market portfolio and available risk-free rate of return, [RM - RF] factor is 7.0

Then, Rj, the cost of equity = 3+ 1.54 [7]

&nb...

5 Pages(1250 words)Research Paper

... finance. Through this section, the authors address the misconception that the CAPM **theory** is applicable only to investment purposes. The application of **capital** **asset** **pricing** **model** together with mean variance analysis is greatly supporting corporate managers in decision making process today (Grinblatt & Titman 2003, p. 132). The author argues that a manger is most likely to lose his job if his organisation is continuously struggling with declining stock **prices** (ibid). Hence every corporate manger is forced to improve the firm’s stock **prices** at any cost. For this, the manager needs clear understanding of the different elements that determine share value. Such knowledge would greatly assist corporate managers to determine what actions would...

7 Pages(1750 words)Essay

...**Portfolio** **Theory** and **Capital** **Asset** **Pricing** **Model** (CAPM) Introduction The kind of investments made evaluates the amount of risk on investments to an investor. Since investors averse risk they always like to be on the safer side by making more payment for safety but getting less in return. Actually risk taking is connected to a greater amount of earnings and to attract investors risky investments offer greater returns.
James Bradfield (2007, p167) defines **portfolio** as an assortment of securities. **Portfolio** **theory** actually is nothing but a traditional analysis of the association between risk and returns on risky securities. The **theory** is useful for investors. It assists them to determine and apportion their funds in securities...

8 Pages(2000 words)Term Paper

...Relevance of **Portfolio** **Theory** and **Capital** **Asset** **Pricing** **Model** (CAPM) Contents Introduction Background Definition Thesis ment 2.Main Body
3. Conclusion
4. Limitations
5. Recommendations
6. References
Introduction
Background
The amount of risk on investments depends on the type of investments. The safest investments that can be made are the Treasury bills. The cost of long term government bonds change with the interest rates. Investment performance concurs with the instinctive risk status. Treasury bills have the least mean return value when they are compared with other types of investments in the shares and stocks of large companies. Since investors are indisposed towards risk they like to play safe by paying more for safety...

8 Pages(2000 words)Essay

In most business, risks are often associated with each venture that entities partake. Logically, every endeavour can be affected by several stressors and will result in unsure forecasts. Indeed, firms are unaware of the exact benefits that an investment despite the forecasts provided by financial analysts. In determining the return that investments will likely provide, organisations make use of cash flows. Comparing the cash the flowed out from the investment to the cash that flowed in because of the investment appears to be a near accurate approach that results in a better understanding of investment returns. Basically, there are certain tools and mechanisms used by firms to justify the use of cash flows. In particular, discounte...

10 Pages(2500 words)Research Paper

...Running head: **Portfolio** **theory** and CAPM Relevance of **portfolio** **theory** and the **capital** **asset** **pricing** **model** to an investor or fund manager in the equity markets
[Writer’s Name]
[Institution’s Name]
Introduction
The equity markets are mostly controlled by the actions of fund managers and subsequently the investors that they advice. These are largely risk based markets where while there is possibility of great profit, there is also the possibility of tremendous loss. In order to ensure good returns on their investments, fund managers and investors take the help of many different tools. Using the **portfolio** **theory** they can figure out just what kind of risk they will be subjected to against projected returns. The **capital** **asset** **pricing** **model**...

8 Pages(2000 words)Essay

...1. Introduction One of the most important decisions of economic agents is how to allocate their wealth against competing invesments. The economic agent is concerned with how his/her wealth can be invested among competiting investments. Portfofolio **theory** helps to determine how best the economic agent can allocate his/her investment. Secondly, the agent is concerned with the required rate of return on his or her investment. This paper provides a discussion of teh relevance of **portfolio** **theory** and the **Capital** **Asset** **Pricing** **Model** (CAPM) to investors. Section 2 looks and **portfolio** **theory** and section 3 looks at the CAPM while section 4 provides some conclusions.
2. **Portfolio** **Theory****Portfolio** selection involves making decisions under uncertainty...

8 Pages(2000 words)Coursework

...Relevance of **Portfolio** **Theory** and **Capital** **Asset** **Pricing** **Model**
Contents
1. Introduction
Background
Definition
Thesis Statement
2. Main Body
3. Conclusion
4. Limitations
5. Recommendations
6. References
Introduction
Background
The amount of risk on investments depends on the type of investments. The safest investments that can be made are the Treasury bills. The cost of long term government bonds change with the interest rates. Investment performance concurs with the instinctive risk status. Treasury bills have the least mean return value when they are compared with other types of investments in the shares and stocks of large companies. Since investors are indisposed towards risk they like to play safe by paying more for safety...

8 Pages(2000 words)Assignment

...The Relevance of **Portfolio** **Theory** and the **Capital** **Asset** **Pricing** **Model** (CAPM) Today’s investors and fund managers are reasonably well-informed individuals who employ several quantitative methods in making decisions. Their decisions are arrived at after careful and deliberate consideration of two major elements: what the investor aims to earn, and how much risk will he expose himself to in order to earn it. Some of the more important academic **theories** developed that shaped today’s general knowledge about investments shall be discussed in the following pages.
Modern **Portfolio** **Theory**
Modern **portfolio** **theory** states that there exists a positive relationship between the risk and the expected return of a financial **asset** (Reilly & Brown, 2006...

8 Pages(2000 words)Coursework