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Capital Asset Pricing Model: Make smart investment decisions to build a strong portfolio
By 50minutes
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About this ebook
Make smart investment decisions to build a strong portfolio
This book is a practical and accessible guide to understanding and implementing the capital asset pricing model, providing you with the essential information and saving time.
In 50 minutes you will be able to:
• Understand the uses of the capital asset pricing model and how you can apply it to your own portfolio
• Analyze the components of your current portfolio and its level of efficiency to assess which assets you should retain and which you should remove
• Calculate the level of risk involved in new investments so that you make the right decisions and build the most efficient portfolio possible
ABOUT 50MINUTES.COM | Management & Marketing
50MINUTES.COM provides the tools to quickly understand the main theories and concepts that shape the economic world of today. Our publications are easy to use and they will save you time. They provide elements of theory and case studies, making them excellent guides to understand key concepts in just a few minutes. In fact, they are the starting point to take action and push your business to the next level.
This book is a practical and accessible guide to understanding and implementing the capital asset pricing model, providing you with the essential information and saving time.
In 50 minutes you will be able to:
• Understand the uses of the capital asset pricing model and how you can apply it to your own portfolio
• Analyze the components of your current portfolio and its level of efficiency to assess which assets you should retain and which you should remove
• Calculate the level of risk involved in new investments so that you make the right decisions and build the most efficient portfolio possible
ABOUT 50MINUTES.COM | Management & Marketing
50MINUTES.COM provides the tools to quickly understand the main theories and concepts that shape the economic world of today. Our publications are easy to use and they will save you time. They provide elements of theory and case studies, making them excellent guides to understand key concepts in just a few minutes. In fact, they are the starting point to take action and push your business to the next level.
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Book preview
Capital Asset Pricing Model - 50minutes
Key information
Names: Capital asset pricing model, CAPM.
Uses: The CAPM is a mathematical method for estimating the profitability of any financial asset. The return forecast is calculated according to the risk that the asset entails.
Why is it successful? The CAPM is one of the most popular risk assessment methods for financial assets. However, its effectiveness has been criticised by economists such as Richard Roll (American economist, born in 1939).
Key words:
Capital market: A meeting place between supply and demand for capital. Supply corresponds to savings (the surplus of available capital) made available to those wishing to borrow. Those who borrow constitute the demand (the need for financing). Balance in this market is crucial.
Financial asset: An asset is a security or a contract that gives the holder the opportunity to obtain a gain in return for a given risk. For example: I buy shares (a financial asset), in the hope that in time their value will increase and I can sell them to earn a profit. However, if the share value decreases, I will make a loss on my purchase.
Interest rate: The interest rate represents the cost of money. It therefore allows me to calculate the costs involved in borrowing or investing money. The interest rate can also be defined as the remuneration obtained in the case of investments.
Portfolio: All the transferable securities (in
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