Scribd Logo
Upload

Welcome to Scribd!

  • 17 views

    CH 6 Capm - PPT

    Uploaded by

    barbarian11
    The document provides an overview of topics related to security analysis, risk, and pricing models: 1. It discusses key concepts like return, risk, beta, the Capital Asset Pricing Model (CAPM), the Capital Market Line, and the Security Market Line. 2. The CAPM assumes investments will achieve an expected return that is determined by its systematic risk or non-diversifiable risk (beta). 3. The Security Market Line shows the expected return of an asset according to its beta and can be used to determine if an asset is underpriced, overpriced, or fairly priced.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd

    CH 6 Capm - PPT

    Uploaded by

    barbarian11
    17 views20 pages
    The document provides an overview of topics related to security analysis, risk, and pricing models: 1. It discusses key concepts like return, risk, beta, the Capital Asset Pricing Model (CAPM), the Capital Market Line, and the Security Market Line. 2. The CAPM assumes investments will achieve an expected return that is determined by its systematic risk or non-diversifiable risk (beta). 3. The Security Market Line shows the expected return of an asset according to its beta and can be used to determine if an asset is underpriced, overpriced, or fairly priced.

    Original Description:

    CAPM

    Original Title

    CH 6 CAPM_PPT

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document provides an overview of topics related to security analysis, risk, and pricing models: 1. It discusses key concepts like return, risk, beta, the Capital Asset Pricing Model (CAPM), the Capital Market Line, and the Security Market Line. 2. The CAPM assumes investments will achieve an expected return that is determined by its systematic risk or non-diversifiable risk (beta). 3. The Security Market Line shows the expected return of an asset according to its beta and can be used to determine if an asset is underpriced, overpriced, or fairly priced.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    17 views20 pages

    CH 6 Capm - PPT

    Uploaded by

    barbarian11
    The document provides an overview of topics related to security analysis, risk, and pricing models: 1. It discusses key concepts like return, risk, beta, the Capital Asset Pricing Model (CAPM), the Capital Market Line, and the Security Market Line. 2. The CAPM assumes investments will achieve an expected return that is determined by its systematic risk or non-diversifiable risk (beta). 3. The Security Market Line shows the expected return of an asset according to its beta and can be used to determine if an asset is underpriced, overpriced, or fairly priced.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    You are on page 1of 20

    SECURITY ANALYSIS RISK,

    CAPM THEORY, ARBITRAGE


    PRICING MODEL
    Lecture Overview
    1. RETURN
    Annualized Return, CAGR Return, Holding Period Return

    2. RISK
    Systematic Risk & Unsystematic Risk

    3. BETA

    4. CAPM
    Assumptions, Features, Formulae & Graphical Representations

    5. CAPITAL MARKET LINE


    Purpose, Features, Market Price of Risk and Expected Return on Portfo
    6. SECURITY MARKET LINE
    e ,Features, Evaluation based on SML, Individual Security VS Portfolio o

    7.GROUP ACTIVITY, DISCUSSIONS & MULTIPLE CHOICE QUESTIONS


    Return
    Return contd..

    Formula for Calculating Return

    Percentage Return = Ending Open + Dividend


    Opening Price Opening Price

    Return = Capital Gains Yield + Dividend Yield


    Risk
    Types of Risk
    Beta
    Beta Contd
    Capital Asset Pricing Model
    CAPM contd..
    CAPM contd..
    Formula for Computing Expected
    Return :
    Security Market Line - Graph
    SECURITY MARKET LINE
    Meaning :
    SML reflects the linear relationship between Systematic Risk and
    expected returns in financials markets, that result when
    expected returns and Beta Coefficients are plotted across a
    graph. SML is the relationship between Expected Return and
    Beta, on which both portfolios and individual securities lie.
    Purpose :
    SML helps to determine if the investment is offering a return that is
    appropriate for its level of risk.
    Given its risk class, a securitys return should be on the SML.

    Evaluation Based on SML:


    Actual Inference Security is -
    Return
    Above SML Stock is yielding a higher Underpriced.
    return than what can be
    expected.
    On SML Stock is yielding a return Correctly Priced.
    equivalent to what can be
    expected.
    Capital Market Line
    Security Market Line Vs Capital Market Line

    Security Market Line Capital Market Line


    Characteristic Line
    Security Market Line Vs Characteristic Line

    Security Market Line Characteristic Line


    CAPM is the context of Valuation of Securities
    Inference

    Undervalu
    CAPM Return < ed
    Estimated Return BUY
    Security

    Correctly
    CAPM Return = valued HOL
    Estimated Return Security D

    Overvalu
    CAPM Return > ed
    Estimated Return Security SELL
    Arbitrage Pricing Model

    You might also like