Capital Asset Pricing Model and Arbitrage Pricing Theory: Capital Asset Pricing Model (CAPM) is an arithmetical theory that describes the relationship between risk and return in a balanced market. The Capital Assets Pricing Model was autonomously and simultaneously developed by William Sharpe, Jan Mossin, and John Litner. The researches of these founders were published in three different and highly respected journal articles between 1964 and 1966. Since its inception, the model

Capital Asset Pricing Model (CAPM) Basically, a diversifiable risk can be taken to be that risk which is largely limited to a given sector or security. On the other hand, a risk which affects the entire assets or liabilities class is referred to as an un-diversifiable risk. While it is possible to eliminate or reduce a diversifiable risk through diversification, the same cannot be utilized when it comes to the elimination

The CAPM is useful to investors from two standpoints -- time value of money and the risk associated with the money invested. The time value of money is revealed by the free rate risk and represents the compensation investors will receive for having invested their money in the respective share, for a specific period of time. The risk of the investment is revealed by the second part of the

Finance There are three different models that can be used to estimate a company's cost of capital. Basically, each of these three is used to estimate the cost of equity. The cost of debt is usually calculated on the basis of the current weighted average of the yield to maturity on the company's debt. Thus, it is the cost of equity that must be calculated. The cost of equity reflects the

Risk, Return and Their Evaluation Risk & Performance Indicators Since this is a small business, therefore raising equity capital through public stock issue is less likely than debt or whatever form of paper issued to angel or venture investors. Therefore while a larger, publicly traded firm would consider the return on equity version of the short form DuPont equation, a small, more closely-held concern would focus on return on assets (ROA). If

Capital One There are a number of risks facing Capital One in the near future. As a financial institution, Capital One faces interest rate risk, in particular given the possibility of a perpetually low interest rate environment (2011 Annual Report, p.2). There is also the risk that economic recovery will not be strong, given the dependency of Capital One on consumer spending, in particular the rise of consumer debt (2011 Annual Report,