## CHECK THESE SAMPLES OF Explain how large companies raise capital from the equity and bond markets. Discuss the relevance of the capital asset pricing model ( CAPM) to company seeking evaluate its cost of capital

...? 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...

1 Pages(250 words)Essay

...**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...

5 Pages(1250 words)Research Paper

..., this theoretical **model** can be effectively employed to determine the **capital** structure by identifying the best combination of debt, **equity**, and hybrid securities to finance the corporation’s **assets** (Swanson et al 2003). Although majority of the corporate applications of this **model** are still debated, no other potential alternative approaches are there to replace **CAPM**. Conclusions In total, the **capital** **asset** **pricing** **model** (**CAPM**) is of great value in a wider range of corporate applications ranging from simple project investment analysis to merger analysis....

7 Pages(1750 words)Essay

...Africa majority of the surveyed respondents preferred instruments like government **bonds** and Treasury bill (Nel, 2002). Limitations of **CAPM** **Model** The limitations of this **model** are as follows: 1. The **CAPM** **model** is very unrealistic for an average investor as they are more interested in the **company** related risk and not **market** related risk. Data like past performance of the **company**, dividend, **equity** valuation **model** etc is more important to the average investor (Rai University, n.d). 2. The assumptions in the **CAPM** **model** are...

7 Pages(1750 words)Essay

...?**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**,...

4 Pages(1000 words)Assignment

...are unrealistic and at some instances inapplicable to **capital** budgeting. Despite these claims, the arguments presented including the comprehensive **discussion** of **CAPM** and the cash flow is sufficient to underline the general contention that **CAPM** supports the use of discounted multi-period risky cash flow.
References
Benninga, S. (2000). Financial **Modelling**, Second Edition. Cambridge, MA: The MIT Press.
Black, F., M. Jensen, and M. Scholes. (1972). The **Capital** **Asset** **Pricing** **Model**: Some Empirical Tests. "Studies in **capital** theory **markets**."
Bogue, M. and R....

10 Pages(2500 words)Research Paper

...).
The **CAPM’s** focus is on the method of measuring systematic risk and **its** effect on the required return and share **prices**. Though it was initially evolved for investment in **equity**, it is also used for **evaluating** **company** investments in **capital** projects now (Davis & Pain, 2002).
**Capital** **Asset** **Pricing** **Model** (**CAPM**) attempts to bring out a linkage between risk and return for the **assets** (Gitman,2006). The **CAPM** is built on the premise that well diversified investors dominate the stock **market**...

3 Pages(750 words)Essay

...**CAPM** **Model** in **Evaluating** **Cost** of **Capital** Whenever a **company** invests in a new project or when an investor invests in some shares, there is always some risk involved (unless the investment is made in risk-free securities such as “gilts”). However, a **company** can also reduce **its** overall exposure to such investment-related risk if it invests in a number of projects with the view that even if the more risky projects perform badly, the less risky projects will cover up for the loss, resulting in an average return from the portfolio that is pretty much closer to what **company** expects i.e....

2 Pages(500 words)Essay

...**Capital** **Asset** **Pricing** **Model**
Introduction
**CAPM** stands for **capital** **asset** **pricing** **model** (**CAPM**) which is used for relating the risk and the associated trade-offs with **market** returns. The security **price** is associated directly with **cost** of the **capital**. However the interest rates can be used in relation to the **cost** of **capital** while beta is used as a proxy for the level risk. These calculations are popular among investment practitioners. **CAPM** is a sub-division...

8 Pages(2000 words)Essay

...the risk-free rate is in equal relation to the systematic risk. In this regard, the higher the beta of a security, the higher will be the expected return of that particular **asset** (Sharpe, 1964).
In the following years, economists have critically reviewed the published theory of **CAPM** and **its** application in reality after comparing the actual returns with the expected returns. The **CAPM** **model** is still widely used by **companies** as an efficient **model** for computing **cost** of **capital** (Ko) on the basis of explanation that securities with higher betas offer higher return. **CAPM** has...

7 Pages(1750 words)Essay