Friday, May 22, 2020

The Capm Assumptions Essay Online For Free - Free Essay Example

Sample details Pages: 3 Words: 1042 Downloads: 5 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Given the paradox between the complexities of the real world, in order to construct good models, those complexities having little effect of the model should be assumed away. A theory is usually validated when it is based on empirical accuracy of its predictions rather than on the realism of its assumptions. The major assumptions of the CAPM are listed as follows: Investors aim at the maximization of utility from holding wealth. Don’t waste time! Our writers will create an original "The Capm Assumptions Essay Online For Free" essay for you Create order Investors selection criteria of investment opportunities are based on expected return and risk. All investors have a risk adverse attitude and behave rationally. Investors choose investment opportunities set based on expected return and risk. Expected returns follow a normal distribution. The lending and borrowing process is unlimited at a common interest rate. No transactions costs are entailed in the trading of securities. Taxes on dividends and capital gains are at similar rates. 3.2 The Capital Market Line In order to represent the set of portfolios that investors would choose in equilibrium through the stated assumptions above, an opportunity set of all risky portfolios is drawn where with the inclusion of a risk free rate asset, the combination of the risk free asset with any risky portfolios is made possible. Expected return Iii Ii Capital market line Rm Opportunity set M Rf ÃÆ' Ãƒâ€ Ã¢â‚¬â„¢m Standard deviation Figure 1 In an equilibrium state, investors prefer a composition of the risk free asset and one risky portfolio that provides the maximum expected return for any given level of variance that is hold efficient portfolios. Such a condition is labeled M in the above diagram, where capital market line (the vertical line starting at the risk free rate of return) meets the opportunity set of risky assets. One of the unparalleled characteristic of the CML is that investors would not want to move beyond point M. That is, investors cannot improve upon the alternatives by this set of portfolios otherwise the market would not be in equilibrium and arbitrage would occur. 3.3 The Security Market Line Sharpe and Lintner developed a framework to describe the relationship between expected returns and the risk associated with securities with the following equation which is in its ex-ante form: E (ri) = rf + ÃÆ'Ã… ½Ãƒâ€šÃ‚ ² [E (rm) rf] (1) In simpler terms, the above equation (1) shows that the expected return on an asset which is equal to the risk free rate of return plus a risk premium. The risk premium is the price of risk (slope of the line) multiplied by the quantity of risk which is the systematic risk (ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²). Equation (1) propounds that in the equilibrium state, an asset with zero systematic risk (ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²=0) will have expected return just equal to that on the riskless asset rf , and expected return on all risky securities (ÃÆ'Ã… ½Ãƒâ€šÃ‚ ² 0) will be higher by the risk premium which is directly proportional to their risk as measured by ÃÆ'Ã… ½Ãƒâ€šÃ‚ ². Such a relation is graphed through the Security Market Line (SML) in the below diagr am (figure 2) with expected returns on the vertical axis and beta on the horizontal axis. The SML shows a positive linear relationship between beta and expected return and the intercept is equal to the risk free rate. Expected Return Security market line Rm M Rf Figure 2 Beta It important to note that efficient portfolios are usually plot on the CML and Figure 3 provides two diagrams which portrays the relationship between the CML and the SML. Point A represents an efficient portfolio A which lies on the CML and point B is an inefficient portfolio outside the CML. However, both portfolios have similar expected return and beta value. Note that the CML concentrates on portfolio standard deviation rather than beta. E(R) E(R) A A, B E (RA) =E (RB) B Rf Rf Figure 3 ÃÆ' Ãƒâ€ Ã¢â‚¬â„¢A ÃÆ' Ãƒâ€ Ã¢â‚¬â„¢B ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²A = ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²B An efficient portfolio is said to have lesser standard deviation of returns than the inefficient portfolio given equal expected returns. The excess standard deviation associated with the inefficient portfolio is called diversifiable risk or unsystematic risk. Investors are not compensated for this kind of risk because in a state of equilibrium, investors only hold efficien t portfolios. Hence it can be perceived that the CAPM is effective in the pricing of all assets whether they demonstrate efficiency or not but the CML only prices efficient portfolios. 3.4 The transition from the ex-ante to the ex-post model As incorporated in the overall study, equation (2)ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ is denoted as an ex-ante or a forward-looking model which uses entirely historical data for the testing purposes. However, a contradiction is formed upon this belief of historical data as there is no proof that the rates of return expected in the future will automatically be equal to realized rates of return over the past periods. Moreover, it should be acclaimed that historical beta may or may not mirror expected future risk. Hence the need to traverse from the ex-ante principles to the ex-post is felt in order to better test for CAPM. The ex-post model specifies some return generating process by assuming that the rate of return on an asset follows a fair game. The fair game signifies that, on average, across a large number of samples the expected return on an asset equals its actual return and is explained as follows: ri = E (ri) + ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²iÃÆ'Ã… ½Ãƒâ€šÃ‚ ´m + ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi (..) Where, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ´m = rm E (rm) E (ÃÆ'Ã… ½Ãƒâ€šÃ‚ ´m) = 0 ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi = a random error term Cov (ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi , ÃÆ'Ã… ½Ãƒâ€šÃ‚ ´m ) = 0 Cov (ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi , ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi t-1 ) = 0 ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²i = systematic risk Note that since CAPM assumes that asset returns are jointly normal, ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²i in the fair game model behaves exactly as in the CAPM model and the market model must hold. Equation (..) assumes that if expected return is taken on both sides, the average realized return is equal to the expected return: E (ri) = E (ri) Substituting E (ri) from the CAPM into (,,) yields: ri = { rf + [ E (rm) ] ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²i + ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²i [ rm E (rm) ] + ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi ri = rf + (rm rf) ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²i + ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi Substracting the risk free rate from both sides: ri rf = (rm rf) ÃÆ'Ã… ½Ãƒâ€šÃ‚ ²i + ÃÆ'Ã… ½Ãƒâ€šÃ‚ µi (..) Equation (..) represents the ex-post model of the CAPM. One important difference between the ex-ante theoretical model and the ex-post model is that the latter can present a negative slope while the former cannot because the theoretical CAPM must have a higher expected return on the market than the risk free rate of return.

Sunday, May 10, 2020

The Meaning of Essay Profile Samples

The Meaning of Essay Profile Samples Writing a profile essay provides you with the freedom to handpick the topic of your preference. Based on the subject and the degree of study of the essay, it's directed to a professional writer to work on it. You want to understand how to compose an effective essay as it is a typical foundation for a student's grade. So as to compose a successful essay on an individual's interview, you should understand how to write it. The trick to writing a terrific profile essay is to select a personal profile essay example of an entertaining subject. Make sure you include any simple details about yourself like your name or alias, what you do, and links of other social networking profiles which you have. Now, if you'd like to wind up with a terrific personal profile, we've got you covered! If you would like to understand how to compose an amazing personal profile, you ought to use personal profile examples as your writing guides. Your paragraphs do not connect one another's meaning and the full thought of your essay might be incomprehensible. If you're thinking that you require a person to compose my essay at the moment, you can merely rely on our honest reviews. A thriving essay on an individual ought to be able to pull in the readers. Sure, you are going to be reading profile essays of famous men and women, and it's quite probable your own story will be very much different. It may be hard to find an organization that delivers high-quality content. Additionally, there are samples of personal profiles that are used for internet networking websites like Facebook and LinkedIn. An individual can come across hundreds of business profile templates, from which the very best one can be chosen to fulfill the needs of the organization. If you've just launched a new company and are trying to earn a terrific first impression on prospective clients, then it's all-important to create a highly effective company profile. This profi le essay example for college should offer you a notion of the way to write. Sooner or later, a profile essay indicates the importance of the individual. Despite the fact that you read other successful essays, observe how they're written, how they're structured, their subject lines, by what means the topic or the individual is introduced and the way the content is written in paragraphs. Your profile essay ought to be a thorough picture of the individual interviewed or the place or a function. The Appeal of Essay Profile Samples Writing an in depth essay about an individual or entity is quite easy as you have all of the essential resources and data available. It's extremely important to read carefully essay services reviews, because you would like to avoid low excellent services. The basis of this is to ensure the essay is simply done by means of a specialist who's well-versed in the topic area so they can create excellent work. You might require assistance from experienced wr iters, that's the reason why we offer cheap essay writing service. You want to understand how to compose an essay and the way to conduct an interview. It's simple to point out an essay which has been written solely for the interest of it. Based on the subject, each essay will be different depending on the depth of the thesis. Your essay shouldn't be totally neutral. To structure an essay, you must simply stick to the aforementioned format. There are several sorts of essays. The essay is broken up into three important pieces. There's no ideal solution on how best to compose an effective essay. The introduction portion of the essay ought to be unique and attention grabber and ought to make readers eager to read further. It should be on a new and unique topic in order to attract the readers. Since you may see, writing a profile essay is a quiet interesting and hard undertaking. It is possible to write a prosperous profile essay by abiding by the guidelines provided in th is guide. Don't forget to begin your essay strongit should be able to spark the interests of your readers. We have a fast, step-by-step guide about the way you can dress your own personal profiles to be able to impress the reader. This is the true portion of your profile essay that will give your readers with the information that they will be expecting dependent on the introduction. In the event that you were writing about a personal profile essay example about a celebrity, you must make the reader feel pleased with the info you've provided.

Wednesday, May 6, 2020

Advertising and Older Consumers Image and Ageism Free Essays

In past years the market that most advertisers aimed towards was the Gen X group. Now many advertisers are shooting at the even younger Generation Y. The interesting thing is that many of these products advertised are items that all generations use, such as food, soft drinks, clothing, cars, entertainment, etc. We will write a custom essay sample on Advertising and Older Consumers: Image and Ageism or any similar topic only for you Order Now Rarely are older generations revealed using these products in print ads or commercials. The Issue: This creates the issue to advertisers that they stereotype older generations and reinforce society’s misconception that people over 50 are feeble, pitiable, or incompetent. In many cases advertisers do just this. Remember the commercial for Lifecall emergency alert device in the early 90’s where the elderly Ms. Fletcher fell in her bathroom and, while lying there helpless, she calls out, â€Å"I’ve fallen and I can’t get up.† Despite the importance of this product to seniors who live alone, the commercial quickly became the brunt of many jokes, including skits on Saturday Night Live and the Tonight Show. Could Lifecall have designed a better advertising campaign that would not have alienated or mocked its target market? This brings up the question of whether advertisers have a responsibility to change the mindset that being over 50 is old? Are they responsible to change the way society views 50+? Can they even change society’s views of 50+? Absolutely! By utilizing cross-generational advertising, marketers can benefit the consumers, companies, advertisers, and society as a whole. The Stakeholders: 50+ Consumers – The nature of the 50+ age group is rapidly changing. Humans are living longer and are more active than ever before. They don’t feel old and feeble, so why would they want to support product advertising that makes them appear weak and vulnerable? They don’t. Advertisers/Corporations – Advertising is the primary source that companies use to inform and educate the public about their product while influencing consumers to purchase it. In the past marketers have primarily advertised towards younger generations because they have more impulsive buying behaviors. Also, according to the case, many executives in the marketing field are from younger generations; therefore, they create advertising campaigns with which they can identify. Society – The overall public, including the target market, views marketing campaigns. Almost everyone has access to publications and television that contain advertising directed at specific groups. For example, children watch the programs their parent’s watch and parents watch children’s programming. We are all exposed to advertising that might or might not be directed towards our generational market and it influences our opinions about those groups. Utilitarianism Theory: Cross-generational advertising is a method of marketing that illustrates many generations using the same products without segregating or degrading any generational groups. This will produce the greatest long-term benefits to the most number of stakeholders. First, using models from Generation Y through the GI Generation will create awareness and a better understanding of age diversity in the consumer market. In turn, stereotypes of older generations will be broken. This could lead to a social and economic breakthrough. Older generations will feel more accepted in society and will have the urge to be more active. As they become more active, greater consumer spending is generated which benefits the corporation’s overall profits and its stockholders. Free Market Theory: According to the IPC Magazine survey identified in the case, 62% of women prefer to see women their own age advertising products towards them1. In addition the over-50 age groups claim the majority of wealth and generate over 51% of consumer spending in the United States2 (see Graph). If companies would advertise using over-50 models and actors, brand recognition would be established because the older consumers would identify with the advertisement and therefore purchase the product. If you look at this from a company’s perspective, there is a substantial market vying for cross-generational advertising. Since the company exists to make money for its shareholders, what would be better than to target the market that possesses the greatest wealth and majority of consumer spending? Rights Theory: Companies have the right to advertise their products to the target markets of their choice. At the same time the consumer has a right to be informed without being misled or deceived. In many cases the messages that advertisements relay give consumers misperceptions about a particular generational group. For example, the majority of pharmaceuticals are advertised using 50+ models. Rarely are these models used for products such as apparel, soft drinks, or new cars. This gives the general public the misconception that anyone over 50 is sick, weak, and unable to use the products that â€Å"everyone† else uses. Justice Theory: When reviewing ageism in advertising, the over-50 population is treated less equitably. A cross-generational marketing strategy would allow 50+ models to advertise everyday products while still appealing to younger markets. This would compensate for past injustices to older generations by finally giving them an accurate portrayal in the media. Marketing campaigns could also incorporate models from different generations to distribute equal time and equal representation in advertising. In the end, future retribution will be given to millions of older Americans as age discrimination in the media is diminished. Social Contract Theory: In the end, advertisers need to gain the trust of their consumers. As long as they continue to mock older generations or ignore them all together, they run the risk of â€Å"punitive reactions – consumer boycott, regulation, media hostility, financial loss, and above all loss of reputation1.† They also owe society a picture of reality when it comes to the aging population. The Baby Boomer generation, with a population of 76 million, is the largest and most economically powerful demographic group in the US3. As a majority of this group has already passed the 50-year mark and the rest are soon to follow, an accurate depiction of our modern day aging process is needed because eventually everyone will pass through these same life stages. How to cite Advertising and Older Consumers: Image and Ageism, Papers