## CHECK THESE SAMPLES OF The CAPM is a valid pricing model and can be trusted to explain the expected return on a security. Discuss

... who are risk averse and at the same time they want to achieve maximum or optimum level of **expected** **return** which is based on the market risk level. It emphasizes that risk is inherent in the process of getting the rewards associated with it. MPT is sometimes called the ‘Portfolio Management Theory’. As per the argument of this **model**, it is a possibility to come up with an efficient frontier that depicts optimal levels of a portfolio giving the maximum rate of **expected** **return** at the given risk levels. (investopedia.com, 2011) The study is set out to **explain** that the most recommendable **model** in the assessment of investment projects is **CAPM**. First things first, though, since lack of consideration of the assumptions would not lead... was Harry...

5 Pages(1250 words)Research Paper

.... In this case, a **security** market line that defines the relationship existing between the beta and **expected** rate of **return** of an asset is utilized. The line also enables firms to calculate a ratio that equates an asset’s rewards to its risks. It is also through the **model** that firms are able to determine the rate at which an asset’s cash inflows **expected** to be generated in future should be discounted. This takes into account the cash inflows in relation to the risks existing in the market. The arbitrage **model** was an alternative to the means variance capital asset **pricing**. Currently, the **model** has become a...

5 Pages(1250 words)Essay

...**CAPM** and Its Practical Use **CAPM** refers to the capital asset **pricing** **model**, a widely adopted **model** within the financial field in order to determine the value of the appropriate rate of **return** for an asset. Generally speaking, the **model** has been extensively adopted by portfolio managers and by financial analysts in order to infer asset required and **expected** **returns** on a standardized basis. It is carried out through a properly designed and professional **model** that does not require to be completely renewed on a case by case basis. It has, therefore, met the requirements of...

8 Pages(2000 words)Essay

...that the competitive market would permit. If the actual **price** of the individual risk is equivalent to the indicated risk then the aggregate premium would not arise in a **expected** portfolio through **Return** On Equity (RoE) without the management of the portfolio risk through reinsurance or diversification. Thus, we **can** observe that **CAPM** is used for evaluation of performance and construction of a rational portfolio value which is used for investment analysis. 3. Fair Remuneration: The **CAPM** **model** helps in establishing a fair remuneration in a regulated monopoly. For example rf = 6 percent, E(rm ) = 12 percent and beta is 0.5...

7 Pages(1750 words)Essay

... a unique portfolio with its own particular array of betas, as opposed to the identical "market portfolio". In some ways, the **CAPM** **can** be considered a "special case" of the APT in that the **Securities** market line represents a single-factor **model** of the asset **price**, where Beta is exposure to changes in value of the Market.
Additionally, the APT **can** be seen as a "supply side" **model**, since its beta coefficients reflect the sensitivity of the underlying asset to economic factors. Thus, factor shocks would cause structural changes in the asset's **expected** **return**, or in the case of stocks, in the firm's profitability.On the other side, the **CAPM** is considered a "demand side" **model**. Its results, although similar to those in the APT, arise... ...

5 Pages(1250 words)Essay

...Capital Budgeting, Risk, **Return**, **CAPM** Supplementary Problem Interest=25 % of 20 billion = 5 billion Tax on the interest = 41 % of 5 billion = 205,000 000
Total amount = 5 billion + 2.05 billion = 7.05 billion
This is the amount that Darth is prior to pay if he goes for a loan so as to acquire the Death star. That means Darth will pay 27.05 billion for acquiring the star.
8 billion * 15 years = 120 billion. This is the amount that Darth **can** pay if he acquires the Death star on lease. This gives that Darth is to seek for a bank loan so as to get the Death star without much expenses. Comparing to the amount that one **can** purchase this instrument with this is a lot more that would push the project far ahead. This gives the importance... ...

3 Pages(750 words)Assignment

...the capital asset **pricing** **model** uses the **expected** **return** of a **security**, APT uses a **security’s** risk **expected****return**, in addition to, the risk premiums of a couple of macro-economic elements. Therefore, from this proposition it is undeniable that **CAPM** has more strong assumptions compared to the APT. For instance, whereas the **CAPM** assumes that there exists a risk free rate in the market, the APT **model** tries to identify risk premium to enable investors take advantage of any mispriced **securities**, which is different from the theoretical...

4 Pages(1000 words)Essay

...Study of the Capital Asset **Pricing** **Model** (**CAPM**) Table of Contents Capital Asset **Pricing** **Model** (**CAPM**) – An Overview 3
**CAPM** beta depicting the risk-**return** relationship 4
Relevance of **CAPM** to corporate managers 6
Reference List 8
Capital Asset **Pricing** **Model** (**CAPM**) – An Overview
Capital Asset **Pricing** **Model** (**CAPM**) was first developed by Lintner (1965) and Sharpe (1964). The **model** aims at highlighting the **expected** **returns** on particular stock,...

4 Pages(1000 words)Essay

...Capital asset **pricing** **model** (**CAPM**) Developments in the Capital Asset **Pricing** **Model** (**CAPM**) Sometimes due to lack of knowledge, the opportunity to invest in profitable investments is lost. The foundation of Capital asset **pricing** **model** was established in an article of a finance journal in the year 1963 named, Capital Asset **Prices**: A theory of market equilibrium under conditions of risk. The **CAPM** **model** was first proposed by Sharpe during 1964 and Lintner during 1965 in which they recommended about a single risk (or beta factor) which is associated with a...

7 Pages(1750 words)Essay

...)
The origin of the **CAPM** **model** **can** be traced back in the 1950s and its originator was Harry Markowitz. Markowitz came up with this theory while working upon his PhD, in which he sought to come up with a tool for investors to compute weights and eventually reach an investment with a maximum **return** and that minimizes on the risk at the same time. (Montier, 2010 p4)
In **CAPM** the risk free interest rate estimates are lifted from the rates of government bonds in the short-run and this **can** be obtained from a proper newspaper. The **expected** interest rate for a given market is also not ascertainable in a direct manner since a...

5 Pages(1250 words)Research Paper