Why is the Capital Asset Pricing Model important?

The Capital Asset Pricing Model (CAPM) is a way to measure the cost of equity of a firm and the expected returns from an investment. Investments come with risk, the higher the return the higher the risk. The CAPM model helps establish the relationship between the expected return and the systematic risk of the company.

The Capital Asset Pricing Model (CAPM) is a way to measure the cost of equity of a firm and the expected returns from an investment. TABLE OF CONTENTS: The Capital Asset Pricing Model explained. Investments come with risk, the higher the return the higher the risk. The CAPM model helps establish the relationship between the… Continue reading →

What is the best way to calculate the Risk-Free Rate and why is it important?

The Risk-Free Rate is a theoretical interest rate of return that carries zero risk. Although technically all investments carry some level of risk, investors want a way to measure the rate of return against other safer alternatives to ensure that the payoff to risk-reward is in their favour.

The Risk-Free Rate explained. The Risk-Free Rate is a theoretical interest rate of return that carries zero risk. Although technically all investments carry some level of risk, investors want a way to measure the rate of return against other safer alternatives to ensure that the payoff to risk-reward is in their favour. The Risk-Free rate… Continue reading →

What is the best way to measure inflation-adjusted return and why is it important?

The Inflation Adjusted Return, also known as the Real Rate of Return, is the Return on Investment after accounting for inflation. Inflation refers to purchasing power of money decreasing due to a general increase in the prices of goods and services.

The Inflation-Adjusted return explained. The Inflation Adjusted Return, also known as the Real Rate of Return, is the Return on Investment after accounting for inflation. Inflation refers to purchasing power of money decreasing due to a general increase in the prices of goods and services. The inflation-adjusted return is a precise measure of the true… Continue reading →

What is the best way to calculate Portfolio Turnover?

The Portfolio Turnover Ratio is a vital metric in portfolio management that indicates the frequency at which securities are bought and sold over a given period. The turnover rate of assets in a portfolio can provide insights into the investor, fund, or strategy type.

The Portfolio Turnover ratio explained. The Portfolio Turnover Ratio is a vital metric in portfolio management that indicates the frequency at which securities are bought and sold over a given period. The turnover rate of assets in a portfolio can provide insights into the investor, fund, or strategy type. Although private investors may not be… Continue reading →

What is the Rule 72 and how to use it?

The rule of 72 is a simple way to determine how long an investment (your capital) will take to double given an annual rate of return. It is a great way to see the effects on your capital with a yield that is known whether it be from dividends, fixed bank rates or bonds. I also use it as an “estimation” only on potential investment ideas if I am modelling ROIC (just for curiosities sake). It is best used for anything that grows at a compounded rate.

The Rule of 72 explained. The rule 72 is a simple way to determine how long an investment (your capital) will take to double given an annual rate of return. It is a great way to see the effects on your capital with a yield that is known whether it be from dividends, fixed bank… Continue reading →

What is the Discount Factor and how to use it?

The Discount Factor is a metric that determines the present value of $1. It is used when conducting financial modelling such as the discounted cash flow or (DCF), net present value (NPV) model. The Discount Factor is used to estimate the present value (PV) of receiving $1 in the future based on the expected date of receiving it and discount rate estimation.

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