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Theoretical basis of capital asset pricing model
Capital asset pricing model also known as CAPM which was developed in early 1960’s by William Sharpe and it is a model that helps to qualify relationship between anticipated return and risk. Sharpe has also considered the risk to be unavoidable of market and can also be diversified.
Capital asset pricing model homework help also gives you information on diversification of risk which means that there is a lower risk and can have expected investment return. In other words, it can be said that investors can achieve higher returns by accepting a market risk. There are two different types of risk in capital asset pricing model:
Formula related to the model
CAPM says that in case the expected return on investment inherent any risk which is less than return and it is also available on any risk free investment that comes along with suitable risk premium, then any investment. Capital asset pricing model assignment help will make you aware that CAPM’s can easily validate any valuing of private companies.
The CAPM formula is expressed in:
Expected return = Govt. bond rate + Risk represented by ‘Beta’
General stock market return – Govt. bond rate
The formula would put all together the variables and risk of any individual company would be represented by ‘Beta’. The risk of any general stock market and the interest rate is known as risk free government bond would give opportunity to spit out exact percentage that investor usually deserves to get any investment.
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