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Capital Asset Pricing Model
This model has been heavily criticised and debated over the past decades, and many of the economists are of the opinion that this framework is not adequate enough to assess various risk factors comprehensively. However, none of the opponents could introduce a potential alternative to this concept till date. This paper will critically analyse the applicability of the CAPM in corporate finance applications in the context of modern business environment. Corporate applications of CAPM Hillier et al (2008, section 5.1) provide a detailed view of the corporate applications of the capital asset...

7 pages (1757 words)
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The Capital Asset Pricing Model (CAPM)
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 rationale about being risk averse and all investors have same assets to choose from given all information concerning the assets and same decision methods are applied (Burton, 1998). This brings us to the concept of the capital asset pricing model (CAPM). The model is very useful and is widely used in the industry, although it is based on very strong assumptions. This paper...

5 pages (1255 words)
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The Capital asset pricing model (CAPM) is a very useful model and it is used widely in the industry even though it is based on v
In this sense, a high quantity of a security’s beta would result in a high expected return of an asset and vice versa. After CAPM was published, and after actual returns were compared with expected returns, many economists have since then criticized the simplicity of and the reality of application of CAPM. The CAPM is still subject to empirical and theoretical criticism despite it being the basis for over a hundred academic papers and having affected non-academic fiscal community considerably. Although it has an apparent invalidity, the CAPM is still widely used by companies as a valuable...

7 pages (1757 words)
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Outline and discuss the Capital Asset Pricing Model (CAPM) as means of valuing securities and their risk. What are the drawbacks
Some other financial experts like Lintner and Mossini also explained and purified CAPM and its interpretation in later years (Gassen, and Sellhorn, 2006). Capital Asset Pricing Model Being a quantitative tool for computing the yield of a security, CAPM is used for pricing the financial asset through mathematical calculations (Fields and Vincent, 2001). There are three main components of CAPM model which are stated as follows: Rf = Risk-free rate Beta = Risk of individual security with respect to market Rm – Rf = Market Risk Premium Risk-free Rate Risk free rate is considered as the rate at...

8 pages (2008 words)
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Evaluation of the Capital Asset Pricing Model (CAPM) Using Chinese Stock Market Data
23). It is worth noting that numerous empirical studies that have conducted in line with evaluating the model have proved to be in harmony with the CAPM principles; nonetheless, some of the similar evaluations have contradicted the model. Therefore, this paper aims at studying if the CAPM principles hold for the China Stock Exchange. Among other things to be included in the analysis, include: i. Whether higher beta results to higher expected returns ii. Whether the zero or average intercept is equal to risk free rate and the SML slope is equal to the average risk premium iii. Whether there is...

42 pages (10542 words)
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The assignment is in three parts:1 Outline and explain the Capital Asset Pricing Model (CAPM) (40%)2. Show how the Capital Asset
William Sharp introduced the model in 1964.Corporate sector uses CAPM in order to identify the required rate of return on assets deployed to achieve organizational objectives. In order to effectively implement CAPM, the corporate sector is required to take into account, the sensitivity of the assets to the symmetric or market risk. The symmetric risk is identified within CAPM equation as beta (?). Keeping in view the logical relationship of CAPM with business related decisions, beta (?) helps the corporate sector to determine the investor’s cost of capital equity acquired. Other factors that...

6 pages (1506 words)
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