## CHECK THESE SAMPLES OF Relevance of Portfolio Theory and 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...

1 Pages(250 words)Essay

...required for taking the risk in investing the stock.
Thus, required rate (RR) is given as
RR = risk free return + β (RM-RF)
= 3+ 1.7 (10-3) {Beta for the industry under calculation is 1.70}
= 15
That is how required rate of return was assumed as 15% (Dividend Growth…)
Arbitrage **Pricing** **Theory** – APT
This **theory** was propounded by Stephen Ross in 1976. This **theory** has more flexible assumptions to describe as and taken as an alternative to (CAPM) **capital** **asset** **pricing** **model**. In contrast to CAPM, which takes into consideration market's expected return, APT takes into account the...

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...

7 Pages(1750 words)Essay

...indicates. The results also have also shown that the expected returns are also related to other measures of risk, which includes firm’s specific risk. Other factors such as market value and book value ratios relationship with returns were found to be significant. In order to test **capital** **asset** **pricing** **model** empirically researchers need to use data on expected **prices**. However, the data available is historical information only. This therefore, will result to biased empirical results. The **capital** **asset** **pricing** **model** assumes that the market **portfolio** consists of all the...

4 Pages(1000 words)Essay

... that is linked to validity is the fact that empirical studies on CAPM **model** have used actual past data and not expected **prices** to test the **model**. This introduces bias and there is need to use expected **prices** to test the **model** to examine its validity. Another assumption of **capital** **asset** **pricing** **model** is that betas are assumed to remain stable over time. This is not possible. From the **model**, beta is a measure of future risk of securities. Investors on the other hand only have past data of share **prices** and market **portfolios**, and not future data. Beta can therefore only be estimated from past data. When past data is used to measure beta, such beta can only be a reliable measure of future risk if it can remain stable over time... returns were...

4 Pages(1000 words)Assignment

...**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... the risk...

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...

8 Pages(2000 words)Essay

..., and the layout of a cash-flow **model**. The results come in a familiar form: simulations of project cash-flows and representations of their statistics
**Capital** **Asset** **Pricing** **Model****Capital** **asset** **pricing** **model** (CAPM) is a theoretical **model** that ascertains the correct rate of return of an **asset**. It follows the condition that the **asset** is to be supplemented in a well-diverse **portfolio** and the **asset** has no-diversifiable risks. Using the security perspective, the security market line was used in connection to...

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...

8 Pages(2000 words)Essay

...**Pricing** **Model**. [Online]
Available at: https://www.icsa.org.uk/**assets**/files/pdfs/BusinessPractice_and_IQS_docs/studytexts/cfm2/l_CFM_6thEd_StudyText_Chapter8.pdf
[Accessed 29 March 2014].
Murthy, L. & Latha, K., 2009. Problems of small-scale entrepreneurs. Journal of Chinese Entrepreneurship, 1(3).
Scowcroft, A., 2003. Advances in **Portfolio** Construction and Implementation. s.l.:Butterworth-Heinemann.
Sharifzadeh, M., 2010. An Empirical and Theoretical Analysis of **Capital** **Asset** **Pricing** **Model**. s.l.:Universal-Publishers.
Sigman, K., 2005. **Capital** **Asset**...

8 Pages(2000 words)Essay