Saved Papers

Save papers so you can find them more easily!

Join Now

Get instant access to over 100,000 papers.

Join Now!

Capital Assets Pricing Model

The Capital Assets Pricing Model is used to determine the necessary rate of return for an investment should it be determined worthwhile. This model factors in the sensitivity of an investment to risk in addition to the anticipated returns of the market and the investment. This model also recognizes the importance of an investor developing a market portfolio. The concept of the market portfolio demonstrates that in order to find financial success, an investor must diversify his investments.
The following equation represents the key concept of the Current Assets Pricing Model.
Rj - RF = βj [RM - RF]
In this equation, Beta is an estimated constant that describes the suspected risk that a company expects to incur. The variable RF represents the expected rate of return on the asset. The risk free interest rate is represented by RF. RM is the market’s expected rate of return.
Through the use of the above equation, one may determine the rate of return necessary on......


View the rest of this paper...

Approximate Word Count: 438
Approximate Pages: 2 (250 words per double-spaced page)

Why should you join Frat Files?

  • - It's safe, secure, and private.
  • - Instant access to over 100,000 papers. New papers are added hourly.
  • - Fast and reliable customer support.

Credit Card

Bank Account

PayPal

Similar Essays

  1. Capital Assets Pricing Model

    Capital Assets Pricing Model. The Capital Assets Pricing Model is used to
    determine the necessary rate of return for an investment ...

  2. Capital Asset Pricing Model (Capm)Vs.Arbitrage Pricing Theory (Apt ...

    ... beauty of the APT is that it is possible to select assets in a ... of the investor.”2
    Now, lets take a look at the Capital Asset Pricing Model (CAPM) method ...

  3. Capital Asset Pricing And Discounted Price Flow Models

    ... previous paragraph, the Capital Asset Pricing Model is a ... company's earning growth,
    balance sheet capital structure and ... Debt differs from assets in many ways ...

  4. Capital Investing

    ... Thus, during the 1960s, with the development of the capital assets pricing model
    (CAPM), the efficient markets hypothesis (EMH), and modern portfolio theory ...

  5. Long-Term Financing

    ... now termed the Capital Asset Pricing Model (CAPM)" (Frängsmyr ... Discounted Cash Flow
    (DCF) Model is another ... in the business to purchase long-term capital assets. ...