Difference between revisions of "CAPM"
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| − | CAPM | + | * Simultaneity: The discount rate depends on the standard deviation (risk) of the project. But value of the project depends on the discount rate again. |
| + | * Solution: Certainty equivalent version ([[Certainty Equivalent Cash Flow|Certainty Equivalent Cash Flow]]) of CAPM | ||
| + | * CAPM may not be the right model to value expected returns (ongoing academic debate) | ||
| + | * CAPM is not inconsistent with real options valuations as the CAPM can be used to value the underlying | ||
| + | * Required rate of return for a new venture: | ||
| + | |||
| + | <math>r_{proj}</math> = <math>R_F + \beta_{proj}(r_M - r_F) + \text{Effort} + \text{Illiquidity}</math> | ||
[[Category:finance]] | [[Category:finance]] | ||
Latest revision as of 19:23, 27 August 2020
- Simultaneity: The discount rate depends on the standard deviation (risk) of the project. But value of the project depends on the discount rate again.
- Solution: Certainty equivalent version (Certainty Equivalent Cash Flow) of CAPM
- CAPM may not be the right model to value expected returns (ongoing academic debate)
- CAPM is not inconsistent with real options valuations as the CAPM can be used to value the underlying
- Required rate of return for a new venture:
=
