CAPM

Essay specific features

 

Issue:

Miscellaneous

 

Written by:

Leroy W

 

Date added:

December 4, 2015

 

Level:

University

 

Grade:

B

 

No of pages / words:

5 / 1266

 

Was viewed:

3461 times

 

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Essay content:

The CAPM was the answer to a question posed by Markowitz’s mean-variance portfolio model, of how to identify tangency portfolio. CAPM shows that risky assets equilibrium rates of return are actually a function of market portfolio covariance. The model is as follows; Ra= RF+ ?a(RM-RF) RF = Risk free rate ?a = Beta of the security RM = Expected Market Return ?a is determined by the formula...
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These values however are only expected to remain representative for as long as the company maintains its attitude to risk. A change to the company’s characteristics, such as a takeover of a company in an unrelated industry, will cause the previous beta value to become inappropriate and unusable in the CAPM formula...
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