Capital Asset Pricing Model Essay

Capital Asset Pricing Model:-

Capital asset pricing model (CAPM) is a theoretically model used to determine required Rate of return or expected return of an asset with its relationship between Risk which is user in the pricing of risky securities or stocks. This means that the higher risk you take, higher potential return should be to offset your risk, this model is dependent on a risk multiplier called the beta

CAPM Model assists the investor to calculate the Risk and what type of return they should expect on their Investment.

Ra = Rf + βa (Rm-Rf)

Where Rf is the Risk free rate βa is the Beta of the security

Rm is the expected market return.

Investors need to be compensated on Time value of money and Risk where Time value of money is mentioned by the risk-free (Rf) rate in the above formula and influences the investors for placing money in any investment over the

Consequently, governments in both developed and developing countries sometimes impose restrictions on the maximum percentage ownership of local firms by foreigners. In countries like India, Mexico, and Thailand, foreigners are allowed to purchase no more than 49 percent of the outstanding shares of local firms. These countries want to make sure those foreigners do not acquire majority stakes in local companies. France and Sweden once imposed an even tighter restriction of 20 percent. In Korea, foreigners were allowed to own only 20 percent of the shares of any local firm until recently. In Switzerland, a local firm can issue two different classes of equity shares, bearer shares and registered shares. Foreigners are often allowed to purchase only bearer shares. In a similar vein, Chinese firms issue A shares and B shares, and foreigners are allowed to hold only B