advantages of capital asset pricing model
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Answer:
ExplaThe capital asset pricing model (CAPM) is a finance theory that establishes a linear relationship between the required return on an investment and risk. The model is based on the relationship between an asset's beta, the risk-free rate (typically the Treasury bill rate) and the equity risk premium, or the expected return on the market minus the risk-free rate.
CAPTheoryFig2
At the heart of the model are its underlying assumptions, which many criticize as being unrealistic and which might provide the basis for some of its major drawbacks. No model is perfect, but each should have a few characteristics that make it useful and applicable.
Advantages of CAPM Model
There are numerous advantages to the application of CAPM, including:
Ease of Use
CAPM is a simple calculation that can be easily stress-tested to derive a range of possible outcomes to provide confidence around the required rates of return.nation:
The capital asset pricing model (CAPM) is a finance theory that establishes a linear relationship between the required return on an investment and risk. The model is based on the relationship between an asset's beta, the risk-free rate (typically the Treasury bill rate) and the equity risk premium, or the expected return on the market minus the risk-free rate.
CAPTheoryFig2
At the heart of the model are its underlying assumptions, which many criticize as being unrealistic and which might provide the basis for some of its major drawbacks. No model is perfect, but each should have a few characteristics that make it useful and applicable.
Advantages of CAPM Model
There are numerous advantages to the application of CAPM, including:
Ease of Use
CAPM is a simple calculation that can be easily stress-tested to derive a range of possible outcomes to provide confidence around the required rates of return.