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Module 10

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Carlos Reyes
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33 views

Module 10

Uploaded by

Carlos Reyes
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Risk, Return, and the Capital Asset Pricing Model

I learned that decisions must be based on expected returns, methods used to estimate
expected return are historical approach, probabilistic approach, risk-based approach. The
historical approach assumes that the distribution of expected returns will be similar to the
historical distribution of returns, the Probabilistic approach is to identify all possible outcomes of
returns and assign a probability to each possible outcome. The risk-based approach is more
theoretically sound and used in practice by most corporate finance professionals. Security
market line is the line connecting the risk-free asset and the market portfolio. EMH in an efficient
market, prices rapidly incorporate all relevant information.

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