Capital Asset Pricing Model - Research Paper Example

Only on StudentShare

Extract of sample
Capital Asset Pricing Model

"As a result, investors choose "mean-variance-efficient" portfolios, in the sense that the portfolios: 1) minimize the variance of portfolio return, given expected return, and 2) maximize expected return, given variance. Thus, the Markowitz approach is often called a "mean-variance model" (Eugene F. Fama).
This figure gives a clear picture of the CAPM. Its horizontal axis shows the portfolio risk which is measure by the standard deviation of portfolio return. Its vertical axis is the expected return. The curve is the minimum variance frontier which "traces the combination of expected return and variance at different levels of expected return" (Eugene F. Fama). This shows the obvious trade-off between risk and expected return.
"At point T, the investor can have an intermediate expected return with lower volatility. If there is no risk free borrowing or lending, only portfolios above b along abc are mean-variance-efficient, since these portfolios also maximize expected return, given their return variances" (Eugene F. Fama).
EM applications. ...Show more

Summary

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…
Author : lockmancody
Capital Asset Pricing Model Research Paper essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the research paper on your topic
"Capital Asset Pricing Model Research Paper"
with a personal 20% discount.
Grab the best paper

Related Essays

Capital Asset Pricing Model

The author explains Arbitrage pricing theory, which does not depend on the performance of the market; it takes into account the fundamental factors that drive the price of the security. Unfortunately, theory does not provide any indication of what these fundamental factors are; instead, they need to be found empirically.

5 pages (1250 words) Research Paper
APT- Arbitrage Pricing Theory and CAPM-Capital Asset Pricing Model
PART I APT- Arbitrage Pricing Theory and CAPM-Capital Asset Pricing Model alike are methods applied in the assessment of any given investment’s expected returns and risks going in tandem. In both, formulas are used in the determination of the required rate of return for a given investment in order it be considered worthwhile.
5 pages (1250 words) Research Paper
The Kounin Model Research Paper
246) It is therefore an enabling skill, that provides a good basis for the exercise of further teaching and learning skills, and there are a number of different ways to achieve good classroom management. This paper explores the approach taken by Jacob Kounin (1912-1995) and proposes that it is still one of the best classroom management theories, despite the fact that it has been around since the middle of the 1970s.
4 pages (1000 words) Research Paper
Research Paper about Health Belief Model
Health statistics depicts that fast food is becomes popular in almost every social setting, especially busy groups like the students. Fast food includes Pizzas, chicken, burger and taco among others. Nutritionists assert that fast food is often high in calories, cholesterol and fat (Lynn, 2009).
6 pages (1500 words) Research Paper
Post-Implementation Challenges of the Model Audit Rule Research Paper
It fully analyzes and examines into details the structures and requirements of the auditing process. It is a detailed examination since it covers the purpose and nature of audit, auditing ethics, and standards. It also includes planning, assessing risks and materiality, evaluation of the internal control system and the accounting system, and test of controls.
12 pages (3000 words) Research Paper
Capital Budgetting Research Paper
In addition, finance is important in the construction of financial statements, diversification in the value of money in an economy and management of capital. However, financial landscape keeps changing around the economy framework due to increase in innovation, growth of wealth accumulation, computing and networks advancement and the periodic onset of financial crises in the world.
7 pages (1750 words) Research Paper
Financial Analysis and Pricing Structure
Start up businesses as well as established ones are able to leverage on the different opportunities because of their ability to have proper analysis of their financial and pricing status. This paper presents the financial and pricing structure for Off 2 Gran Grans, a company that offers services to the elderly people.
5 pages (1250 words) Research Paper
Capital Budgeting Research Paper
b. With no capital rationing, the primary consideration in selecting a project is the NPV. Theoretically, all projects which yield positive NPVs should be selected should there be no budget constraint. Thus, both projects are pursued when there is no capital rationing.
6 pages (1500 words) Research Paper
Pricing
According to the report pricing strategy is the task of the top management with the help of middle level and low level management. This is done by analyzing the local and the international market, clear method of analyzing the conditions where a successful marketing can be carried out. Pricing is the process of influential decision.
6 pages (1500 words) Research Paper
Financial Analysis and Pricing Structure
This paper presents the financial and pricing structure for Off 2 Gran Grans, a company that offers services to the elderly people. Off 2 Gran Grans is a service organization with a
5 pages (1250 words) Research Paper
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT