High or low risk : investor's dilemma on cost of equity / Farida Rasiwala and Joshi Rajni.

Format:

Book

Author/Creator:

Rasiwala, Farida, author.

Rajni, Joshi, author.

Series:

SAGE business cases.

SAGE business cases

Language:

English

Subjects (All):

Capital assets pricing model--Case studies.

Capital assets pricing model.

Investments--Case studies.

Investments.

Physical Description:

1 online resource : illustrations.

Place of Publication:

London : SAGE Publications: SAGE Business Cases Originals, 2023.

Summary:

The focus of the case study is the use of the Capital Asset Pricing Model (CAPM) in measuring the cost of equity and discussion of its primary weaknesses as a model, such as assuming one single source of risk (i.e., market risk). The case attempts to compute the CAPM sensitivity factor (beta) for two different stocks: Sun Pharmaceutical Industries Ltd and Larsen & Toubro Ltd, and to determine the fund manager's investment strategies in selecting the right stock. The case outlines market risk influence on the covariance among assets using a regression model. The fund manager wants to know the risk and expected return of the different stocks and decides to use the classic CAPM to value the cost of equity, which primarily includes the beta coefficient and market premium. The objective of the case study is to apply CAPM to these two stocks and to compute each asset's sensitivity (i.e., beta) to non-diversifiable market risk. To do that, we will use a simple linear regression model, then a normal process to validate the model's assumptions and ensure its stability over the data sample. Moreover, the case compares the cost of equity calculation of two different companies, one with high risk and the other with low risk, using the CAPM approach.

Notes:

Description based on publisher supplied metadata and other sources.

ISBN:

1-5296-1035-4

9781529610352

OCLC:

1362533943