Sample Essay

Relationship between the beta and required return and expected venture is plotted on SML to display the projected return from securities. These results of CPM formula are represented in a way where the x-axis is used to represent the risk while y-axis is to represent the projected revenues.

Using the gradient of the SML plotted on the graph. The beta and expected revenue’s relationship is displayed, with the projected return as the function of beta. At the point of interception the risk-free rate is determined and the gradient indicates the premium for the market.  This can be considered to represent a model for asset price known as the single factor. This is the one that exposes the change in market value. This therefore becomes an essential way to make and decide on choices that are in consideration as to which one will offer a considerable amount of return for a particular risk.

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