CAPM Analysis

Capital Asset Pricing Model

Capital Asset Pricing Model

Solution

The assumptions about the CAPM meaning are not correct. The CAPM model was originally developed by the F. Sharpe who got the Nobel Prize for his work in 1990. This explanation mentioned above is derived from Harry Markowitz Modern Portfolio Theory, not from the Bill Sharpe's CAPM.

A very important factor in the building the portfolio is the portfolio diversification which preserves the investors from avoiding the unsystematic risk.

CAPM states the existence of only one risk factor i.e. Market risk. The compensation of taking one extra risk is linked directly to the amount ...