Question

In: Finance

Why do financial managers have some difficulty applying the CAPM in financial decision making? Generally, what...

Why do financial managers have some difficulty applying the CAPM in financial decision making? Generally, what benefits does the CAPM provide them?

Solutions

Expert Solution

The financial managers may face some difficulty during the application of the CAPM in financial decision making. These can be the following-

I) A lot of assuptions- The CAPM model inolves a lot of assumptions which is too unrealistic at times. This may lead to doubt about the accuracy of the results.

II) Unceratinity in using the rates and value- Risk-free Rate (Rf), Return on the market (Rm), and other values if not entered correctly may lead to volatility.

Despite of these difficulties inCAPM there are some benefits as well. Which can be the following-

I) Eliminates the unsystematic risks

The CAPM model makes the assumption that the investors have a diversified portfolio as same as similar to a market portfolio. Diversified portfolio eliminates unsystematic (specific) risk.

II) Ease of Application-

It just simplifies the calculation so that easy range of possible outcomes can be derived.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

What is the relationship between financial decision making and risk and return? Would all financial managers...
What is the relationship between financial decision making and risk and return? Would all financial managers view risk-return trade-offs similarly? Pick a fictitious company or the company you chose in your weekly discussion and examine how the company management views risk-return trade-offs. Why do organizations take risk? Support your position with figures or charts. Ensure all the questions are addressed. Your paper must be two-pages in length, double spaced with proper citation and references. Use at least two peer reviewed...
What is the relationship between financial decision making and risk and return? Would all financial managers...
What is the relationship between financial decision making and risk and return? Would all financial managers view risk-return trade-offs similarly? Pick a fictitious company or the company you chose in your weekly discussion and examine how the company management views risk-return trade-offs. Why do organizations take risk? Support your position with figures or charts. Ensure all the questions are addressed. Your paper must be two-pages in length, double spaced with proper citation and references. Use at least two peer reviewed...
In what ways do the classical and administrative models of decision making help managers appreciate the complexities of real-world decision making?
MANAGEMENT 3303In what ways do the classical and administrative models of decision making help managers appreciate the complexities of real-world decision making?How do hygiene and motivational factors differ? What are the implications of the two-factor theory for managers?Define expectancy theory. Identify the theory's three key concepts and the ways in which managers can use expectancy theory to motivate employees.How can managers use reinforcement theory to motivate their employees?Describe goal-setting theory. Briefly identify the theory's basic components.What is the job characteristics...
What does the Administrative Model of Decision Making (March and Simon’s work) suggest managers do in...
What does the Administrative Model of Decision Making (March and Simon’s work) suggest managers do in order to control how people in organizations make non-routine decisions?
What does the Administrative Model of Decision Making (March and Simon’s work) suggest managers do in...
What does the Administrative Model of Decision Making (March and Simon’s work) suggest managers do in order to control how people in organizations make routine decisions?
Why is the financial management position becoming so important? What do financial managers do and what...
Why is the financial management position becoming so important? What do financial managers do and what types of businesses employ financial managers? What are the responsibilities of and need for financial managers?
How Does National Culture Affect Managers ‘Decision Making? Give some examples?
How Does National Culture Affect Managers ‘Decision Making? Give some examples?
1. Decision Making and Management Effectiveness Why do you think decision making is considered a fundamental...
1. Decision Making and Management Effectiveness Why do you think decision making is considered a fundamental part of management effectiveness? 2. How to Compensate for Relative Lack of Experience As a new, entry-level manager, how important is it for you to find ways to compensate for your relative lack of experience when trying to determine which alternative before you is most likely to succeed? What are some ways you can meet this challenge? 3. Using Social-Networking Sites to Help Market...
How and why does climate affect purchasing/decision making factors? What are some examples of this?
How and why does climate affect purchasing/decision making factors? What are some examples of this?
The decision making is called______ because managers do not need to repeatedly make new judgments about...
The decision making is called______ because managers do not need to repeatedly make new judgments about what should be done, they are replying on long-established decision rules. Cognitive-based Non-programmed Programmed Subconscious mental based
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT