You must have Credits on your Balance to download this sample

# CAPM (Capital Asset Pricing Model) and Its Practical Use.

Undergraduate

Essay

Finance & Accounting

Pages 8 (2008 words)

Download 1

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. …

Get more done in less time

Let us write a custom essay on your topic

“CAPM (Capital Asset Pricing Model) and Its Practical Use.” with a personal 15% discount.

Order now
## Introduction

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 the Asset Management industry in which the capacity to correctly price securities, and to properly infer the right rate of return. These are used to determine traditional and innovative alternative assets and provide all qualities that can make possible for a portfolio manager to gain an early lead over competitors (Brigham and Houston). The model, from a technical perspective, has been based on the works of Dr Harry Markowitz, a widely renowned professional and researcher who had been able to conduct important studies and researches in the field of diversification and of modern portfolio theory. According to his studies, some fundamental proven hypotheses can be synthesized as follows: Harry Markowitz, Nobel Prizer, investigated the effects of correlation rates and of diversification policies and strategies. As a result, he found that diversification in this sense, when correctly computed and carried out, can reduce and minimize the risk of a portfolio, together with an improvement of its required rate of returns. ...

Download paper
Not exactly what you need?

### Related papers

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,…

What Is The CAPM (Capital Asset Pricing Model) And Of What Practical Use Is It?
When the expected return of a security is determined using the model then it can be compared to the estimated return of security over a given time period. Such comparison will help the investor to analyse whether it is worthwhile investing into the security. CAPM was first conceptualised and pioneered by William Sharpe, Jack Treynor, Jan Mossin and John Lintner through their independent works…

CAPM (Capital Asset Pricing Model)
and expected returns which is denoted as r. The ? is used as a measure of non diversified risk and implies that the expected return is the return on a risk free asset in addition to a risk premium (Laubscher, 2002). The risk premium will be equivalent to the market return in surplus of the risk free rate which is multiplied by the share portfolio. This is the reason that ? is regarded as the…

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.…

The Capital Asset Pricing Model
The equation that is applied in the calculation of CAPM for the assets is as follows: E(Ri) =RF +?i [E(RM) - RF] Where, E (Ri) = expected return of the ith level. Rf = risk-free return of an asset (such as short-term government securities), ?i = beta coefficient of ith level, and (RM) = Expected return on the market. The main aim of the CAPM model underlies the identification of the market…

Capital Asset Pricing Model
Usually, the overall volatility of the market is measures through proxies when implementing this model, for instance, the use of FTSE index. Such proxies are not usually the true measures of the market volatility which is at the core of the CAPM assumptions. Therefore, the model estimations from CAPM with use of market proxies for volatility can only predictions that are approximates and not the…