Reference no: EM133377120

In your review of this article "Does the Capital Asset Pricing Model Work?" answer all elements of the following questions.

1. Introduction of Topic and Facts as presented of the case (if applicable).  Make this an executive summary. Tell me the major findings of your case study here, so that an executive reading your case would be able to get the big picture by just reading your introduction.
2. A Detailed Case Discussion.:

• Define unsystematic and systematic risk. Provide a real-world example of each based on finance news headlines.  Which of these risks are applicable to the CAPM and why? How is it conveyed in the CAPM?
• Describe how the Security Market Line illustrates the relationship between expected return and beta. What does it mean if a security plots above the line? Below?
• How do differing levels of inflation affect the resulting expected return of the CAPM? Provide a hypothetical example to illustrate your points.
• What role does the cost of equity from the CAPM play in the result of the Discounted Cash Flow (DCF) model for dividends (i.e., Dividend Discount Model)? In other words, how would a higher/lower expected return on equity affect the resulting stock price of the Dividend Discount Model?
• What do empirical tests tell us about the efficacy of the CAPM in predicting returns? What are the author's conclusions about the usefulness of the CAPM?
• Summarize the main elements of your case and develop three take-aways you have from this assignment.