Developing the inputs required for applying CAPM

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Samarth Vijh

Business Wirtschaft & Finanzen

DEVELOPING THE INPUTS
REQUIRED FOR APPLYING CAPM

Determinants Risk Free
of CAPM Trade

Market Risk
Beta
Premium

DETERMINANTS OF CAPM

Risk free
Market rate
Risk
Premium

Beta

DETERMINATS

DETERMINANTS OF CAPM

Free from
Default
Risk &
Uncorrelat
ed with
returns

Nature of
Risk Free
Rate

Return on
Structure
Zero-Beta
Construction
Portfolio is
is costly &
Best
complex
Estimate

DETERMINANTS OF CAPM
 The sensitivity of a security to the movement of
the market is measured by “Beta Coefficient(
)”
 Beta > 1.00 = aggressive security
Beta < 1.00 = defensive security
 Beta of a portfolio is nothing but the weighted
average of the beta’s of securities that constitute
the portfolio, the weights being the proportion of
investments in the respective securities.

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Developing the inputs required for applying CAPM

1. DEVELOPING THE INPUTS REQUIRED FOR APPLYING CAPM

2. Determinants Risk Free of CAPM Trade Market Risk Beta Premium

3. DETERMINANTS OF CAPM Risk free Market rate Risk Premium Beta DETERMINATS

4. RISK FREE RATE

5. DETERMINANTS OF CAPM Free from Default Risk & Uncorrelat ed with returns Nature of Risk Free Rate Return on Structure Zero-Beta Construction Portfolio is is costly & Best complex Estimate

6. DETERMINANTS OF CAPM

7. MARKET RISK PREMIUM

8. DETERMINANTS OF CAPM

9. DETERMINANTS OF CAPM

10. BETA

11. DETERMINANTS OF CAPM  The sensitivity of a security to the movement of the market is measured by “Beta Coefficient( )”  Beta > 1.00 = aggressive security Beta < 1.00 = defensive security  Beta of a portfolio is nothing but the weighted average of the beta’s of securities that constitute the portfolio, the weights being the proportion of investments in the respective securities.

12. THE END