CAPM and NPV Review

목차

What Does Risk Look Like?
Diversification:
CAPM
Cost of capital
Capital Budgeting and NPV

본문내용

The two big things to remember out of the first section of this class are the “time value of money” and “the efficient market hypothesis”. The time value of money helped us to define the price or value of any asset as the present value of its cash flows. Present value depends on the size and timing of cash flows. We know that risk has to play a part in the pricing of any asset, so at this point we want to add risk to the definition of an assets value and come up with a way to measure that risk. The efficient market hypothesis, at least in its most believable form - the weak form, tells us that an asset’s price follows a random walk. If we believe this, we have a very convenient way to measure risk.

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