Difference between revisions of "CAPM"

Revision as of 18:38, 27 August 2020

CAPM

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-* Simultaneity: The discount rate depends on the standard deviation (risk) of the project. But value of the project depends on the discount rate again.
+CAPM
-* 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]]