Client’s Financial Questions: ? What is the Capital Asset Pricing Model (CAPM) and how is it used...

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Finance

Client’s Financial Questions:
? What is the Capital Asset Pricing Model (CAPM) and how is itused to evaluate whether the expected return on an asset issufficient to compensate the investor for the inherent risk of theasset?
? What is an efficient capital market and why market efficiencyis important to financial managers?
? Identify the assumptions that are necessary to make thegeneral dividend valuation model easier to use, and, in doing so,to be able to use the model to calculate the value of a company’sordinary shares.
? Explain net present value (NPV) as a capital budgeting tooland how NPV is used for the evaluation of a capital project.

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Answer A CAPM Model tells us the Relation ship between systematic risk and required return for an asset Model Equation is Expected return Risk free rate beta market return risk free rate Beta Measures the Volatility associated with the risk If the expected return for a given beta does not satisfy the See Answer

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Client’s Financial Questions:? What is the Capital Asset Pricing Model (CAPM) and how is itused to evaluate whether the expected return on an asset issufficient to compensate the investor for the inherent risk of theasset?? What is an efficient capital market and why market efficiencyis important to financial managers?? Identify the assumptions that are necessary to make thegeneral dividend valuation model easier to use, and, in doing so,to be able to use the model to calculate the value of a company’sordinary shares.? Explain net present value (NPV) as a capital budgeting tooland how NPV is used for the evaluation of a capital project.