W201 Module 3 Application of CAPM
FIN2101 BUSINESS FINANCE II Module 3 Application of CAPM
Student Activities Reading Text, Chapter 7(pp. 250-1 only) Text Study Guide, Chapter 7(part only) Study Book, Module 3(inc Appendix 3. 1) Tutorial work o Tutorial Workbook, Self Assessment Activity 3.1 o Text study Guide chapter 7, t/F7, Mc 12, 13
Student Activities Reading • Text, Chapter 7 (pp. 250-1 only) • Text Study Guide, Chapter 7 (part only) • Study Book, Module 3 (inc. Appendix 3.1) Tutorial Work • Tutorial Workbook, Self Assessment Activity 3.1 • Text Study Guide, Chapter 7, T/F 7, MC 12, 13
CAPM SML Equation: K -RF+b, x(kmR
CAPM SML Equation: k = R + b (k -R ) j F j m F
Applications of CAPM As a pricing model compare the required return from CAPM with the anticipated or expected return based on market prices o To calculate the cost of capital for a company, a division of a company, or even a specific project
Applications of CAPM • As a pricing model – compare the required return from CAPM with the anticipated or expected return based on market prices. • To calculate the cost of capital for a company, a division of a company, or even a specific project
CAPM As A Pricing Model Underpriced (above SML) Overpriced(below SML)
CAPM As A Pricing Model • Underpriced (above SML) • Overpriced (below SML)