## CHECK THESE SAMPLES OF Disscuss the relevance of the capital asset pricing model (CAPM) to a company seeking to 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 **model** pose as...

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 equity. The minimum rate of return that shareholders would ask for is also known as...

5 Pages(1250 words)Research Paper

...The **Capital** **Asset** **Pricing** **Model** (**CAPM**) Introduction For an open market place, an idealized framework is assumed. In this market, stocks available for trade are assumed to risky **assets**. Moreover, there are also those **assets** that are not associated to any risk and customers borrow whichever the quantity they want since there are no stipulations limiting quantities to be borrowed. However lending has an interest rate attached to it. In the open market, it is also assumed that traders have all **relevant** information rates of stocks and other co-variances. Traders in an open market are also assumed to be...

5 Pages(1250 words)Essay

...= $300 million. Required annual profit would be 300 * 0.063 = $18.9 million. 6.3 percent is known as **cost** of equity **capital** and affects the **price** the monopoly **company** will charge. 4. The use of Beta in **companies**: The beta is used by the investment analyst who refers to variety of resources for determining beta. Beta is used by all the investment analysts working in channels like Bloomberg, McGregor BFA and other financial risk service. However the various investment analyst use different equity valuation approaches (Nel, 2002). 5. Use of proxy for risk free rate: Risk free rate is one of the important components of **CAPM**...

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, the **model** assumes that one can...

4 Pages(1000 words)Assignment

...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 expected return...

10 Pages(2500 words)Research Paper

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A Discussion of the **Relevance** of the **Capital** **Asset** **Pricing** **Model** (**CAPM**) to a **Company** **Seeking** to **Evaluate** it’s **Cost** of **Capital**.
Introduction
In finance and the business world, the **cost** of **capital** represents the **costs** involved in terms of obtaining money, which also can be stated as the return that is required in order to meet the expense of underwriting a project (investopedia, 2007). Krausz and Pava (1995, p. 17) tell us that the **Capital** **Asset** **Pricing** **Model** (**CAPM**) represents a foundation of finance as it assumes investors are interested in two important facets as represented by “…the mean and variance of portfolio returns”. This study will look into the **Capital** **Asset** **Pricing** **Model** using Virgin Media as an example of the manner... in...

4 Pages(1000 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 of finance which...

8 Pages(1500 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