Applying the Capital Asset Pricing Model (CAPM) and Risk Identification and Mitigation
Two-part assignment: All parts must be at least 200 words unless otherwise noted. Please read all attachments and follow ALL instructions.
Part 1: Applying the Capital Asset Pricing Model (CAPM)
Analyze the Capital Asset Pricing Model (CAPM). Using the course text and an article from ProQuest as references, address the following:
Explain how the CAPM assists in measuring both risk and return.
Explain how the CAPM assists in calculating the weighted average costs of capital (WACC) and its components.
Illustrate why some managers have difficulty applying the Capital Asset Pricing Model (CAPM) in financial decision making.
Identify the benefits and drawbacks of using the CAPM.
Part 2: Risk Identification and Mitigation
Using the annual report from the company that you have selected for your Final Project, discuss the risks the company faces and the actions they take to mitigate those risks. Refer to the Management Discussion and Analysis section of the annual report for this information.
As part of your response consider whether you think the risk mitigation techniques are reasonable. Discuss what others concerns or advice you would offer if you had the opportunity.
Include in your post a calculation for the probability of one of the risks identified by your company. This information may not be available in the annual report, therefore you will likely need to conduct research and critical thinking to complete this calculation.
Tip: For help with reading an annual report access this handy guide from Money Chimp
Byrd, J., Hickman, K., & McPherson, M. (2013). Managerial finance [Electronic version]. Retrieved from https://content.ashford.edu/
· Chapter 7: Required Returns
· Chapter 8: Cost of Capital
BusinessQldGov. (2014, April 10). Identifying business risk – Risk management series [Video file]. Retrieved from https://www.youtube.com/watch?v=cZwyIPGhF_U
Fama & French (1992). The Cross Section of Expected Stock Returns. Journal of Finance (47), 427 – 46. Retrieved from ProQuest Database.