Capital Asset Pricing Model

Essay specific features

 

Issue:

Business

 

Written by:

Rachel H

 

Date added:

February 4, 1997

 

Level:

University

 

Grade:

A

 

No of pages / words:

4 / 1023

 

Was viewed:

8 times

 

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Essay content:

Unlike the DCF model, the time value of money is not considered. This model assumes the investors understands the risk involved and trades without cost. Two types of risk is associated with the CAPM model: unsystematic and systematic. Unsystematic risks are company-specific risk. For example, the value of an asset can increase or decrease by changes in upper management or bad publicity...
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Unsystematic risks are company-specific risk. For example, the value of an asset can increase or decrease by changes in upper management or bad publicity. To prevent total loss, the model suggests diversification. Systematic risk is due to general economic uncertainty. The marketplace compensates investors for taking systematic risk but not for taking specific risk...
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