Explain the risk of the capital asset pricing model, Financial Management

Assignment Help:

Discuss risk from the perspective of the Capital Asset Pricing Model (CAPM).

The Capital Asset Pricing Model, or also known as CAPM, can be employed to calculate the suitable required rate of return for an investment project given its degree of risk as calculated by beta (β).  A project's beta denotes its degree of risk relative to the whole stock market.  In the CAPM, while the beta term is multiplied through the market risk premium term, the result is the additional return over the risk-free rate that investors demand from that individual project.  High-risk or high-beta projects comprise high required rates of return, and low-risk or low-beta projects comprise low required rates of return.


Related Discussions:- Explain the risk of the capital asset pricing model

Investment decision and financing decision, The Investment Decision: - Inv...

The Investment Decision: - Investment decision as well known as 'Capital Budgeting' is related to the selection of long-term assets or else projects in which investments will be m

Export/import bank (eximbank), Export/Import Bank (Eximbank) Federal Im...

Export/Import Bank (Eximbank) Federal Import-Export Bank, whose mainly function originally was to compensate U.S. exporters for subsidies approved competitors by foreign govern

Monetary policy, Monetary Policy The Federal Reserve's goal is to regul...

Monetary Policy The Federal Reserve's goal is to regulate the growth of the monetary aggregates to ensure sufficient credit expansion to foster economic growth, without inflati

Define the explicit cost of capital, Define the Explicit cost of capital ...

Define the Explicit cost of capital Explicit cost of retained earnings that involve no future flows to or from firm is minus 100 per cent. This must not tempt one to infer that

Convexity measure , We can measure the convexity with the help of following...

We can measure the convexity with the help of following formula:                                                                              ...Eq. (4) Where,          Δ

Regular payback period, The director of capital budgeting for a firm has re...

The director of capital budgeting for a firm has recognized two mutually exclusive projects, A and B, with the following expected net cash flows:

What is logistics, What is logistics? Explain the important activities in l...

What is logistics? Explain the important activities in logistics systems. Logistics - meaning . Working of logistics systems - three important activities - Order processing, I

Callable bonds, Basics of  Callable Bonds A callable b...

Basics of  Callable Bonds A callable bond is a convertible bond with the favorable feature of call option available to the issuer. When the fir

Important factors for successful budgetary control, IMPORTANT FACTORS FOR ...

IMPORTANT FACTORS FOR  SUCCESSFUL BUDGETARY CONTROL 1. Clearly defined organization structure. 2. Top management support. 3. Reporting of deviations 4. Efficient acco

How is present value affected by a change in discount rate, How is present ...

How is present value influenced by a change in the discount rate? Present value is oppositely related to the discount rate.  Alternatively, present value moves in the reverse dire

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd