Compare the pros and the cons of the capital asset pricing model (CAPM) and the Arbitrage Pricing Theory (APT). Then, discuss the reliability of the CAPM and APT by referring to recent empirical testing from the U.S. market and/or the international market.
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- Although its application continues to spark vigorous debate, modern financial theory is now applied as a matter of course to investment management. CAPM, the capital asset pricing model, is a theoretical representation of the behavior of financial markets and can be employed in estimating a company’s cost of equity capital. Despite limitations, the model can be a useful addition to the financial manager’s analytical tool kit. The expanding work on the theory and application of CAPM has produced many sophisticated, often highly complex extensions of the simple model. Discuss the assumptions that the modern financial theory and CAPM rest on. Discuss whether assumptions that they depend on are realistic or unrealistic. Discuss how the concept of risk is defined or calculated in financial theory and CAPM.What is a Dividend Discount model? What is the main advantage of this model over the Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT) approaches? Explain“The Security Market Line is flatter than the ‘Capital Asset Pricing Model’ (CAPM) would predict.” Describe the theory and empirical evidence related to this statement.
- Critically evaluate the view that the large movements in prices for Unity Software shares in the first six months of trading undermine the relevance of the dividend valuation model and the concept of market efficiency. First trading Day = USD $68.35 One month = USD $89.30 3 months = USD $157.77 6 months = USD $101.67explore the assertion regarding the state of Financial Markets, both globally and within the Caribbean region, evaluating whether they are characterized by market perfection or imperfection. Argument should be in favor that markets are perfect, allowing for a comprehensive examination of the topic. To enhance the analysis of key points in the subject argument, it is imperative to employ relevant finance theories or concepts that either validate or refute the efficient market hypothesis (EMH). These concepts serve as a robust framework for understanding financial phenomena. By leveraging established concepts, one can systematically evaluate the evidence presented, thereby bolstering the argument's credibility and depth.Exploring the Efficiency of Financial Markets in the Caribbean: An Analysis of Evidence Supporting and Challenging the Efficient Market Hypothesis Objective: Explore the assertion regarding the state of Financial Markets, both globally and within the Caribbean region, evaluating whether they are characterized by market perfection or imperfection. Students have the flexibility to argue in favor that markets are perfect or that markets are imperfect, allowing for a comprehensive examination of the topic. To enhance the analysis of key points in the subject argument, it is imperative to employ relevant finance theories or concepts which either validate or refute the EMH. These concepts serve as a robust framework for understanding financial phenomena. By leveraging established concepts, one can systematically evaluate the evidence presented, thereby bolstering the argument's credibility and depth.
- Orb Trust (Orb) has historically leaned towards a passive management style of its portfolios. The only model that Orb’s senior management has promoted in the past is the Capital Asset Pricing Model (CAPM). Now Orb’s management has asked one of its analysts, Kevin McCracken, CFA, toinvestigate the use of the Arbitrage Pricing Theory model (APT).McCracken has determined that a two-factor APT model is adequate where the factors are the sensitivity to changes in real GDP and changes in inflation. McCracken’s analysis has led him to the conclusion that the factor risk premium for real GDP is 8 percent while the factor risk premium for inflation is 2 percent. He estimates for Orb’s High Growth Fund that the sensitivities to these two factors are 1.25 and 1.5 respectively. Using his APT results, he computes the expected return of the fund. For comparison purposes, he then uses fundamental analysis to also computethe expected return of Orb’s High Growth Fund. McCracken finds that the two…Examine the role of foreign investor participation in the South African bond market as discussed in the interview. How might behavioural finance theories, such as herding behaviour and investor sentiment explain the influence of foreign investors on the JSE’s bond market efficiency? Provide examples from the interview to support your analysis. please make sure answer is in essay formarIn a time series regression of the excess return of a mutual fund on a constant and the excess return on a market index, which of the following statements should be true for the fund manager to be considered to have “beaten the market” in a statistical sense? Select one: a. The estimate for Beta (parameter) should be positive and statistically significant b. The estimate for Beta (parameter) should be positive and statistically significant c. The estimate for Beta (parameter) should be positive and statistically significantly greater than the risk-free rate of return d. The estimate for Beta (parameter) should be negative and statistically significant.
- which of the following situations does not demonstrate an attempt at financial engineering? 1. aggressively interpreting GAAP so that the impact on critical ratios is minimal 2. accounting for bona fide business transactions and a transparent manner 3. creating complex legal arrangements and financial instruments 4. structuring depth financing so that it meets the GAAP definition of equity rather than debtDiscuss the following statement: “The Capital Asset Pricingmodel (CAPM) has solved all the problems of estimating the relationship between risk andreturn”.The __________, often used in financial economics, is a method of valuing a company's stock by using predicted dividends and discounting them back to present value. The idea is that the value of a stock is the present value of all future dividends it is expected to provide. A) Dividend Discount ModelB) Capital Asset Pricing ModelC) Efficient Market HypothesisD) Arbitrage Pricing Theory