Define beta. How is it calculated? How can it be used by investors?

Q: Explain the Opportunistic Investing strategies?

A: Opportunistic investing strategies are strategies that involve investment in highly risky…

Q: How do an investment's required rate of return vary with perceived risk? Explain with an example?

A: Required rate of return refers to the rate which the investors expects from their investments. This…

Q: What is the capital asset pricing model (CAPM)? What does it tell us about the required return on a…

A: The required rate of return of a security is the minimum return an investor will demand from the…

Q: Are the financial projections realistic and healthy?

A: Estimating things before the real cost and revenue incurred is known as financial estimation.…

Q: Describe the capital asset pricing model and explain the role of beta as a risk measurement tool.

A: Answer

Q: What are investment returns?

A: Investment returns are a performance measure used to evaluate a speculation’s adequacy or to think…

Q: What is the reason for investors to track moves in the yield curve? Please discuss in more depth and…

A: A yield curve is a graphical representation of the different interest rates that the bonds yield but…

Q: Explain Market Analysis?

A: Market value is a strong shareholder richness measuring stick. And besides, what depends is what the…

Q: The objective function of an investor in a CAPM world is to what (mathematically) [what are your…

A: The Capital Asset Pricing Model (CAPM), which takes regular research and testing into account, is a…

Q: Suggest what is the best financial instrument to offset market risk exposure and from market…

A: The question is based on the concept of hedging the market risk and volatility by use of a proper…

Q: Describe the SML in words.  What is it saying about how investors form required rates of return?…

A: This question talks about Security Market Line (SML) and its implications on.Security Market Line is…

Q: What does “PE” stand for in the PE ratio, and how do investors use this ratio?

A: Ratio Analysis: This refers to the performance measurement of the business, in order to know the…

Q: If the efficient market hypothesis is true, what are the implications for the investors?

A: Efficient market hypothesis: Efficient market hypothesis assumes states that stocks are traded at a…

Q: What is the Capital Asset Pricing Model (CAPM)?What are some of its key assumptions? Has itbeen…

A: Capital Pricing Model (CAPM) is an investment theory that shows the relationship between the…

Q: Which among the following is a better investment products, bonds, stocks or investment funds?…

A: Investment fundIt is the pool of capital that the number of investors makes payment into, which is…

Q: If we compare the betas of various investment opportunities, why do the assets that have higher…

A: Volatility of a particular stock (or security) is determined by measuring the beta. Beta is an…

Q: What are the weaknesses of capital market research?

A: Capital market is the market in which securities are traded. Primary market and secondary market are…

Q: How can a firm’s managers influence market risk as reflectedin beta?

A: Beta:  It is the measurement of volatility of a stock compared to the market movements. A stock with…

Q: An investor purchased 50 shares of stock in a company for $50 per share. One year later, the…

A: Rate of Return = Total Profit / Purchase cost of shares

Q: Explain what is meant by beta. What risk does beta measure? What is the market return? How is the…

A: Beta is measure of risk and volatility of stock.

Q: What does “investment risk” mean?

A: Risk is referred as uncertainty or loss. Financial risk is referred as the variability of actual…

Q: why do we need to quantify the investment risk and returns?

A: Almost all investments possess certain risks and return.

Q: 1.What is the relationship between an investment’s risk and its return? Please provide examples if…

A: Note:  As per our policy, we only answer one question, when more than one question is posted. The…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.