Asset Pricing Model-Free-Samples for Students -Myassignementhelp

Question: Write a Literature on the Historical account of the Development and Application of Capital Asset Pricing Model in Managerial Finance. Answer: Introduction This study deals with understanding the concept of Capital Asset Pricing Model and purpose of CAPM model in executive business. In this particular assignment, proper emphasis has been given on the theories of CAPM model and how it is helpful for the financial managers (Zabarankin, Pavlikov and Uryasev 2014). The current segment explains about historical account of the progress as well as purpose of Capital Asset Pricing Model in supervisory business in the most appropriate way. Historical account of the development and application of Capital Asset Pricing Model in managerial finance Capital Asset Pricing Model is one of the asset pricing theories that estimate the cost of capital for business firm for the purpose of assessing the performance of managed portfolios. This particular pricing model offers powerful as well as pleasing predictions on matters relating to risk measurement and the relation between expected return and risk (Moosa 2013). The empirical problems of CAPM model show theoretical failings those results to get simplified assumptions. Capital Asset Pricing Model is used for describing the relationship between risk as well as return in the most appropriate way. CAPM can be used for pricing of risk securities and this model was introduced in the year 1964 as an extension of the Modern Portfolio Theory (Barberis et al. 2015). In addition, the theories explore ways where investors need to construct portfolios that have minimal risk levels for maximizing returns. This pricing model is used by financial professionals for calculating the required return t hat is based on risk measurement. The model particularly relies upon risk multiplier that is known as beta coefficient (Berk and Van Binsbergen 2016). It is the responsibility of the business financial manager to calculate the cost of equity capital of business enterprise. It is quite a difficult task to estimate the cost of equity and often result is subjective by nature as well as open to question as a reliable benchmark. In addition, Capital Asset Pricing Model is one of the tools that explain how financial markets price securities as well as formative expected returns on capital investments. Furthermore, the model give details about the method for quantifying risk as well as translating that risk into estimates of expected return on equity (Dempsey 2013). By using CAPM model, it will be easy to understand the nature of predictable cost of equity. This model cannot be used in separation as it explains in detail about world of financial markets. CAPM is a tool that deals with risks as well as returns especially on financial securities. In addition, the rate of return need to be ascertained by an investor for receiving from buying a common stock as well as holding it for specific period of time as it equals cash dividend received and adding up capital gains (Fama and French 2017). Conclusion At the end of the study, it is concluded that CAPM can be used by financial managers as it supplement with other techniques as well as their own judgment for developing realistic and useful cost of equity calculations. Capital Asset Pricing Model shows hypothetical illustration of the performance of economic that need to be engaged for estimating cost of equity capital. The above analysis puts emphasis on understanding all the factors that govern use of CAPM model by financial managers in the most appropriate way. Reference List Barberis, N., Greenwood, R., Jin, L. and Shleifer, A., 2015. X-CAPM: An extrapolative capital asset pricing model.Journal of Financial Economics,115(1), pp.1-24. Berk, J.B. and Van Binsbergen, J.H., 2016. Assessing asset pricing models using revealed preference.Journal of Financial Economics,119(1), pp.1-23. Dempsey, M., 2013. The capital asset pricing model (CAPM): the history of a failed revolutionary idea in finance?.Abacus,49(S1), pp.7-23. Fama, E.F. and French, K.R., 2017. International tests of a five-factor asset pricing model.Journal of Financial Economics,123(3), pp.441-463. Moosa, I.A., 2013. The capital asset pricing model (CAPM): the history of a failed revolutionary idea in finance? Comments and extensions.Abacus,49(S1), pp.62-68. Zabarankin, M., Pavlikov, K. and Uryasev, S., 2014. Capital asset pricing model (CAPM) with drawdown measure.European Journal of Operational Research,234(2), pp.508-517.