In-Depth Analysis of the Capital Asset Pricing Model: Project Report

This finance project report provides an in-depth analysis of the Capital Asset Pricing Model (CAPM), a fundamental model used in asset pricing to understand the relationship between systematic risk and expected return. The report covers the background, objectives, and findings related to CAPM, including its history, modifications, and criticisms. Key theories such as Markowitz portfolio theory and modern portfolio theory are explored, along with elements like systematic and unsystematic risk. Empirical results based on real company data are discussed to illustrate the practical application of the CAPM model. The report concludes by summarizing the overall study and its implications for investors and financial managers, highlighting the model's role in evaluating asset performance and investment decisions. Desklib offers a wealth of similar resources for students.

Running Head: Finance
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Project Report: Finance

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Executive summary:
Introduction:
CAPM model:
CAPM is an investigation model which explains about the relationship of systematic
risk and the return from the assets of an organization. It is widely used in the corporate
finance by the financial analysts, investors etc to measure the total return from the assets and
security of the business. CAPM is most common method to measure the discount rate of the
company and evaluate the total cost of the business in consideration of the security amount.
The very general idea about the capital assets pricing model is that the investors are required
to compensate it in two ways which are risk and time value of money.
Background of the study:
In the report, CAPM model has been evaluated; various studied have been conducted
on the CAPM model to measure the overall performance of the business. The CAPM model
is considered by the investors and the financial managers both to measure the performance of
the business, capital structure and the investment level of the business. Due to which, it
becomes important to understand the concept off the CAPM model. CAPM model offers a
great value about the equity cost of the business on the basis of the volatility in the stock
price, risk free rate and the market return from the company.
Currently, the literature review has been done on the CAPM model, process,
characteristics etc to measure the overall position and the importance of the CAPM model in
a business. In the report, history, modification and current scenario of CAPM model has been
studied and it has been found that when the concept has been started, why it has been started
and what is the current phase of the CAPM model. Various CAPM theories have also been
studied to measure the CAPM model effectively. The main focus has been done on the
Markowitz portfolio theory, modern portfolio theory, miller and schools theory, black theory
etc.
Further, along with the study, it has been found that the CAPM model has been
criticized a lot by various economist and financial managers such as Merton (1973), Roll
(1997) etc. Other related theories have also been studied along with the CAPM model to
understand the concept briefly. The various elements of the CAPM model have also been

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studied in the report. The systematic risk, unsystematic risk, CAPM formula, excess market
return etc has been studied and learnt in the report.
Lastly, the empirical results have been discussed from the real data of the companies
on the basis of the discussed formulas and the elements to understand the practical scenario
of the CAPM model. And a conclusion study has been given at the end which described
about the overall study and the results from the CAPM model.
Objective of the research:
The main objectives of performing the study on CAPM model is as follows:
 To identify the concept of CAPM model
 To understand the importance of the CAPM model
 To identify the uses of CAPM model
 To identify the criticism of CAPM model
 To study the influence on the CAPM model
 To evaluate the impact of the CAPM model on the investors etc.
Findings:
On the basis of the overall study on the CAPM model, it has been studied that the
CAPM model is modern theory which evaluates the overall return from the particular assets
and security of an organization. It measures the performance of the company and the
investment level of the company and explains that whether the investors should invest into
the project or not.
Conclusion:
To conclude, the CAPM model has been conceptual after eliminating the assumptions
and drawbacks of traditional model of evaluation on the financial statement of the company.
The project would evaluate the all drawbacks and the importance of the CAPM model and
measure that whether it is a good choice or not.
Literature review:
The capital assets pricing model is most popular and fundamental model in the asset
pricing. The CAPM model briefs the risk and return relationship of an organization along

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with the other common elements of the business. The CAPM model measures that what is the
expected return and the risk associated with the investment of a particular security. It explains
that the expected return on the stock of an organization is always equals to the risk free return
along with the risk premium of the stock. It always based on the security’s beta. The below
graph explains about the CAPM model easier. The graph of CAPM model is as follows:
Figure 1: Capital assets pricing model
CAPM model is used by the businesses and the financial analysts to determine the
theoretically appropriate required return of an asset. It has been introduced by Jack Treynor
(1961, 1962), John Lintner (1965), Jan Mossin (1966) independently.
CAPM elements:
Empirical results:
Conclusion:
References:
Appendix: