CAPM Model Examples

However, the prevalence of the method is difficult to explain, as it provides similar results in comparison with other methods of evaluating the cost of equity.

The time series plots for the monthly returns of the three companies, market index, and the risk free rate of return are presented in appendix B.

In the case of Ameritrade, the estimated Asset Beta is 2.06. It reflects the fact that the returns on the proposed investment are highly dependent on the market returns.

The difference between the two variables is that one has a reflection of other shares in that portfolio, while the other one is an individual share. The higher the volatility of the stock, the higher [...]

Although some of the fluctuations of the stock have been in the opposite direction to that of the market portfolio, most of the fluctuations have been in the same direction with the market.

Moreover, the article by these authors accents on the fact that the modern portfolio theory is intended to analyze the possible return on investments as it requires making a graph to identify the average growth [...]

Burger King is a famous American fast food company that, in the past, competed with McDonald's for the title of the most widespread and popular burger company in the USA and abroad.

Such a demographic presence of the company leads to the growing popularity of cruise travel as a vacation option, especially with regards to the company's reputation as the leading service provider in the sphere.

Specifically, the study will cover the problems of the capital asset pricing model in pricing stock returns or portfolio returns, whether the size effect is against the EMH, the main differences between behavioural finance and [...]

In this case, the value of the beta is less than 1 and it implies that the stock of the company is 14% less volatile than the market.

From the analysis, based on the weights assigned, it is apparent that the most important factors affecting Amazon's business growth and expansion include the growth of Internet usage, the expansion of the e-commerce industry, and [...]

4 billion to investors paying dividends and stock buybacks thereby increasing stakeholder returns by 21%. The market cap of the organization grew by more than $30 billion.

The model is an identity that calculates the required rate of rate by adding a risk premium to the risk free rate of return. The risk premium is the product of price of risk and [...]

Often, we found it necessary to identify a number of actions that can be undertaken by the management of Goodman Fielder to better the prospects of their company.

This paper outlines the types of risk and assumptions of the capital asset pricing model as well as demonstrating an application of the CAPM equation using a simple example. The rate of return represent the [...]

According to CAPM, the cost of capital is a perfect linear equation of the rate of return on a risk free financial security and the beta of the project being assessed.

The following diagram indicates the SML, which explains the CAPM functions based on Markowitz portfolio theory, the risk of an asset in a portfolio is the covariance of that asset with the market portfolio m.