Headlines
  • Economies of Scale vs. Economies of Scope

Accounting for Intangible Assets

08 Mar 2012 / 0 Comments

Steve Collings looks at the fundamental principles in accounting for goodwill and intangible assets and also looks at some fundamental differences between current UK GAAP, IFRS and the proposed IFRS for SMEs.As accountants we are all aware that an intangible asset does not have any physical form

Read More...

Internal Rate Of Return: An Inside Look

Gordon Growth Model

Calculating Covariance For Stocks

Financial Accounting
Economics

Economies of Scale vs. Economies of Scope

Generally speaking, economies of scale is about the benefits gained by the production of large volume of a p...

Currency Appreciation and Depreciation

Current and Financial Account Surpluses and Deficits Current account deficits (or surpluses) and financi...

Communication Skills

A Sample Cover Letter For A Job Application

Most jobs ask for a cover letter along with your resume. A cover letter can make or break your case with th...

Communication

  VERBAL COMMUNICATIONThe term “Verbal” implies ‘use of words’ which makes language. Verbal communicati...

Information Technology

    Lesson 4: Creating Charts

    In Microsoft Excel, you can represent numbers in a chart. On the Insert tab, you can choose from a variety o...

Laws

INDEMNITY and GURANTEE

Normal 0 false false false MicrosoftInternetExplorer4 ...

Contract of Agency

KINDS OF COMPANIES

Contract: express and implied terms

Contract: the elements of a contract

Management and Marketing

Interest rate risk management

The management of risk is a key area within a number of ACCA papers, and exam questions related to this area ...

Regional and Sustainable Development Department

RSCG is the Capacity Development and Governance Division of the, Regional and Sustainable Development Departm...

Comparison of financial and management accounting

There are two broad types of accounting information: • Financial Accounts: geared toward external users of...

Financial Management

The Capital Asset Pricing Model

...

Mathimetics

Linear Equation with Video Examples

An equation is a mathematical statement that has an expression on the left side of the equals sign (=) wi...

Straight-Line Equations

Solving Literal Equations

Systems of Simultaneous Equations

SolvingSystemsAlgebriacally

Cost Accounting

Product vs Period Costs

Product Costs: Include all costs that are required to make a product Product costs are: Direct Material...

Manufacturing Overhead

Zero-Base Budgeting

cash budget

Master Budget

Statistics
Audit and Assurance
Economics
Published On:Saturday, 31 December 2011
Posted by Muhammad Atif Saeed

The Capital Market Line

As seen previously, adjusting for the risk of an asset using the risk-free rate, an investor can easily alter his risk profile. Keeping that in mind, in the context of the capital market line (CML), the market portfolio consists of the combination of all risky assets and the risk-free asset, using market value of the assets to determine the weights. The CML line is derived by the CAPM, solving for expected return at various levels of risk.

Markowitz' idea of the efficient frontier, however, did not take into account the risk-free asset. The CML does and, as such, the frontier is extended to the risk-free rate as illustrated below: 


Systematic and Unsystematic RiskTotal risk to a stock not only is a function of the risk inherent within the stock itself, but is also a function of the risk in the overall market. Systematic risk is the risk associated with the market. When analyzing the risk of an investment, the systematic risk is the risk that cannot be diversified away.

Unsystematic riskis the risk inherent to a stock. This risk is the aspect of total risk that can be diversified away when building a portfolio.

Formula 17.10


                 Total risk = Systematic risk + Unsystematic risk


When building a portfolio, a key concept is to gain the greatest return with the least amount of risk. However, it is important to note, that additional return is not guaranteed for an increased level of risk. With risk, reward can come, but losses can be magnified as well.

About the Author

Posted by Muhammad Atif Saeed on 19:26. Filed under , . You can follow any responses to this entry through the RSS 2.0. Feel free to leave a response

By Muhammad Atif Saeed on 19:26. Filed under , . Follow any responses to the RSS 2.0. Leave a response

0 comments for "The Capital Market Line"

   

Leave a reply

Visit Counters

free counters
Free counters

About Me

My photo
I am doing ACMA from Institute of Cost and Management Accountants Pakistan (Islamabad). Computer and Accounting are my favorite subjects contact Information: +923347787272 atifsaeedicmap@gmail.com atifsaeed_icmap@hotmail.com
  1. Accounting for Intangible Assets
  2. Fair Value Measurement of Financial Liabilities
  3. The Concept of Going Concern
  4. The Capital Asset Pricing Model
  5. Bond Valuation
  6. Asset Management Market Efficiency Asset Management Market Efficiency
x

Welcome to eStudy.Pk....Get Our Latest Posts Via Email - It's Free

Enter your email address:

Delivered by FeedBurner