CAPM

Business & Finance
Tutor: None Selected Time limit: 1 Day

Explain how the CAPM assists in measuring both risk and return.

Explain how the CAPM assists in calculating the weighted average costs of capital (WACC) and its components.

Identify the benefits and drawbacks of using the CAPM.

May 21st, 2015

1)  the model assist analyst to split total of security into systematic risk and unsystematic risk, under return the model allow analyst to predict future return of a portfolio by analyzing systematic risk which is the main determinant of return.

2)CAPM asist WACC in determining its cost of capital by its components such as;cost of equity(ks),cost of debt (kd) and cost of prefrence shares (Kps)

3) benifit-valuation of securities,capital budgeting

     drawbacks-they use of perfect market where their is no transaction cost and taxes and investors are assume to borrow and lend at the risk free rate         

May 21st, 2015

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May 21st, 2015
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