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FINANCIAL MARKET COURSES

Portfolio Theory – The Capital Asset Pricing Model (CAPM)

The principles of the capital asset pricing model (CAPM) are central to portfolio building. Although more sophisticated models of risk and return have been proposed since its arrival in the mid-1960s, few more influential or intuitively appealing financial models have ever been developed. This course describes in detail the theory of CAPM and looks at some of the empirical evidence of the validity of the model.

  • OBJECTIVES

    On completion of this course, you will be able to:

    List the assumptions of the capital asset pricing model and assess their implications

    Draw and describe the capital market line as used in CAPM

    Apply your knowledge of the capital market line to derive the security market line

    List the drawbacks of CAPM and explain some of the empirical evidence both for and against CAPM

  • COURSE OUTLINE

    Topic 1: Assumptions of the Capital Asset Pricing/Model

    How Realistic are The CAPM Assumptions?

    The Market Portfolio

    Topic 2: The Capital Market Line

    Calculating Expected Returns

    Topic 3: The Security Market Line

    Calculating Expected Returns

    Identifying Mis-priced Securities

    Topic 4: Problems with the Capital Asset Pricing Model

    Market Portfolio

    Risk-Free Rate

    Risk-free Rate – Zero-Beta CAPM

    Taxes

    Beta

    Other non-Beta Factors

    Validity of CAPM – Empirical Evidence

    Problems with CAPM

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    90 Minutes

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