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
Did you know? You can earn $20 for every friend you invite to Studypool!