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Finance & Accounting
Pages 6 (1506 words)
Capital Asset Pricing Model Name Course: Professor: Institution: City and State: Date: Table of Contents Introduction 3 The Background of Companies 4 Woodside Petroleum 4 Santos Limited 4 Oil Search Limited 4 Aurora Oil & Gas 5 Beach Petroleum Limited 5 Literature Review 5 Methodology 7 Specification of the Model 7 References 10 Capital Asset Pricing Model Introduction Financial managers use the capital asset pricing model (CAPM) to determine a theoretically required rate of return of an asset.
Jack Treynor introduced the concept of the capital asset pricing model to build on diversification and modern portfolio theory introduced by Harry Markowitz (Levy, 2011). Capital asset pricing model is simple to use; this has made it possible to retain popularity despite the modern approaches to asset pricing and portfolio selection. This financial project aims at analyzing a given equally weighted portfolio, which constitutes five types of stocks listed in the Australian Stock Exchange. The project will measure the rate of return on securities of Woolside Petroleum, Santos, Oil Search, Aurora Oil & Gas and Beach Petroleum. The systematic risk will be determined using Beta as the basis of measurement. The project will also evaluate the performance of the selected stock using the capital asset pricing model. The result from the analysis is beneficial to both current and prospective investors when making investment decisions. The analysis will also enable investors to decide whether to add their investment assets to the existing portfolio by finding non-diversifiable risk in the investments. ...
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