|Capital asset pricing model (CAPM)|
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Definition of Capital asset pricing model (CAPM)
Capital asset pricing model (CAPM)
An economic theory that describes the relationship between risk and
Capital Asset Pricing Model (CAPM)
A model for estimating equilibrium rates of return and values of
capital asset pricing model (CAPM)
Theory of the relationship between risk and return which states that the expected risk
economic components model
Abrams’ model for calculating DLOM based on the interaction of discounts from four economic components.
present value of a perpetuity with growth.
log size model
Abrams’ model to calculate discount rates as a function of the logarithm of the value of the firm.
QMDM (quantitative marketability discount model)
model for calculating DLOM for minority interests r the discount rate
Acquisition of assets
A merger or consolidation in which an acquirer purchases the selling firm's assets.
Administrative pricing rules
IRS rules used to allocate income on export sales to a foreign sales corporation.
Arbitrage Pricing Theory (APT)
An alternative model to the capital asset pricing model developed by
Arbitrage-free option-pricing models
Yield curve option-pricing models.
Any possession that has value in an exchange.
The ratio of total assets to stockholder equity.
Also called surplus management, the task of managing funds of a financial
Asset activity ratios
Ratios that measure how effectively the firm is managing its assets.
Asset allocation decision
The decision regarding how an institution's funds should be distributed among the
A security that is collateralized by loans, leases, receivables, or installment contracts
Methods of financing in which lenders and equity investors look principally to the
Categories of assets, such as stocks, bonds, real estate and foreign securities.
A bond indenture restriction that permits additional borrowing on if the ratio of assets to
Asset for asset swap
Creditors exchange the debt of one defaulting borrower for the debt of another
Asset pricing model
A model for determining the required rate of return on an asset.
A firm's investing in assets that are riskier than those that the debtholders expected.
Asset substitution problem
Arises when the stockholders substitute riskier assets for the firm's existing
An interest rate swap used to alter the cash flow characteristics of an institution's assets so as to
The ratio of net sales to total assets.
Asset pricing model
A model, such as the capital asset pricing model (capm), that determines the required
A firm's productive resources.
A common element of a financial plan that describes projected capital spending and the
Average cost of capital
A firm's required payout to the bondholders and to the stockholders expressed as a
Binomial option pricing model
An option pricing model in which the underlying asset can take on only two
Black-Scholes option-pricing model
A model for pricing call options based on arbitrage arguments that uses
Money invested in a firm.
Net result of public and private international investment and lending activities.
decision Allocation of invested funds between risk-free assets versus the risky portfolio.
A firm's set of planned capital expenditures.
The process of choosing the firm's long-term capital assets.
Amount used during a particular period to acquire or improve long-term assets such as
The transfer of capital abroad in response to fears of political risk.
When a stock is sold for a profit, it's the difference between the net sales price of securities and
Capital gains yield
The price change portion of a stock's return.
A lease obligation that has to be capitalized on the balance sheet.
The difference between the net cost of a security and the net sale price, if that security is sold at a loss.
The market for trading long-term debt instruments (those that mature in more than one year).
Capital market efficiency
Reflects the relative amount of wealth wasted in making transactions. An efficient
Capital market imperfections view
The view that issuing debt is generally valuable but that the firm's
Capital market line (CML)
The line defined by every combination of the risk-free asset and the market portfolio.
Placing one or more limits on the amount of new investment undertaken by a firm, either
The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
Amounts of directly contributed equity capital in excess of the par value.
The debt and/or equity mix that fund a firm's assets.
A method of constructing a replicating portfolio in which the manager purchases a
Also called financial leverage ratios, these ratios compare debt to total capitalization
A table showing the capitalization of a firm, which typically includes the amount of
Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures
Interest that is not immediately expensed, but rather is considered as an asset and is then
Complete capital market
A market in which there is a distinct marketable security for each and every
Also called the Gordon-Shapiro model, an application of the dividend discount
Cost of capital
The required return for a capital budgeting project.
Cost of limited partner capital
The discount rate that equates the after-tax inflows with outflows for capital
Value of cash, accounts receivable, inventories, marketable securities and other assets that
Total par value (number of shares issued, multiplied by the par value of each share). Also
Liability-matching models that assume that the liability payments and the asset cash
Discounted dividend model (DDM)
A formula to estimate the intrinsic value of a firm by figuring the
Dividend discount model (DDM)
A model for valuing the common stock of a company, based on the
Dividend growth model
A model wherein dividends are assumed to be at a constant rate in perpetuity.
Dynamic asset allocation
An asset allocation strategy in which the asset mix is mechanistically shifted in
Efficient capital market
A market in which new information is very quickly reflected accurately in share
Exchange of assets
Acquisition of another company by purchase of its assets in exchange for cash or stock.
Extrapolative statistical models
models that apply a formula to historical data and project results for a
A way of decomposing the factors that influence a security's rate of return into common and
Claims on real assets.
Long-lived property owned by a firm that is used by a firm in the production of its income.
Fixed asset turnover ratio
The ratio of sales to fixed assets.
Garmen-Kohlhagen option pricing model
A widely used model for pricing foreign currency options.
Hard capital rationing
capital rationing that under no circumstances can be violated.
The unique capabilities and expertise of individuals.
A model of stock returns using a market index such as the S&P 500 to represent common or
A legal claim to some future benefit, typically a claim to future cash. Goodwill, intellectual
Issued share capital
Total amount of shares that are in issue. Related: outstanding shares.
Value at which a company's shares are recorded in its books.
asset that is easily and cheaply turned into cash - notably cash itself and short-term securities.
Value of property, equipment and other capital assets minus the depreciation. This is an
Indicator of financial leverage. Shows long-term debt as a proportion of the
Limitation on asset dispositions
A bond covenant that restricts in some way a firm's ability to sell major assets.
The total dollar value of all outstanding shares. Computed as shares times current
Market capitalization rate
Expected return on a security. The market-consensus estimate of the appropriate
This relationship is sometimes called the single-index model. The market model says that the
The process of creating a depiction of reality, such as a graph, picture, or mathematical
A version of the capital asset pricing model derived by Merton that includes extramarket
Net asset value (NAV)
The value of a fund's investments. For a mutual fund, the net asset value per share
The difference between total assets on the one hand and current liabilities and noncapitalized longterm
Net working capital
Current assets minus current liabilities. Often simply referred to as working capital.
A tangible asset with unique physical properties, like a parcel of land, a mine, or a
Nondiversifiability of human capital
The difficulty of diversifying one's human capital (the unique
Opportunity cost of capital
Expected return that is foregone by investing in a project rather than in
In the balance of payments, other capital is a residual category that groups all the capital
Other current assets
Value of non-cash assets, including prepaid expenses and accounts receivable, due
Outstanding share capital
Issued share capital less the par value of shares that are held in the company's treasury.
Pecking-order view (of capital structure)
The argument that external financing transaction costs, especially
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