Reflection paper Essay Example | Topics and Well Written Essays - 750 words - 20

Reflection paper - Essay Example Unfortunately, without any consideration on the possible consequences that such an action or decision may have on the society as a whole. The chapter tries to outline the adverse impacts that a capitalist society has on the development of the entire community, whilst negatively getting biased towards such an economic system. To help create the picture of the situation, three persons are used, A, B and C, who put their funds in a use that best suits them. The example of landholding, whereby A leases its holdings to B. if checked into considerably, the after effect on the society mainly depends on the actual purpose that the ultimate user of the property puts it into. In other words, the output of the property determines its usefulness to the society in a capitalistic system. A property may be leased out or sold from one individual to the next, say A to B. for A, they shall have gotten the value worth their property, hence not suffered any loss. However, the problem remains in the sense that the ultimate output of the property is rolled to the society. In the case of A, the society benefits depending on the use to which they put the property. If they, for instance, decide to squander the money accrued in the sale or lease of the property, it remains up to the society. Another problem falls on person B, who has bought the property. They may have it channeled in a use that is beneficial to them, or worse still, have it put in an investment that may be considered unproductive. For example, say B has a series of employees, who manage their property. If the employees choose to rip him of the property or divert the usage, the loss shall have been suffered by him, yet the eventual loss stills fall on the community. In a capitalist society, the government also falls a victim of blame depending on the use to which its various assets and revenues are put. To help outline the precept from the perspective of the

Critically analyse the relative merits of the capital asset pricing Essay - 2

Critically analyse the relative merits of the capital asset pricing model (CAPM) and empirical approaches to asset pricing (such as the Fama and French model) - Essay Example The CAPM is the graphically represented by the security market line (SML), which shows the expected rate of return for the individual security as a function of systematic risk (indicated by the beta of the security). The SML is shown in the following figure. Suppose an investment was made in a stock with a beta of 1.5. Assuming the return on the market portfolio at 12%, and the return on the one-year treasury bond benchmark rate to be 8%, the rate of return the investor may expect on the stock would be determined by application of the CAPM as: The stock investment is therefore expected to contribute a return of 14% to the investor’s portfolio, which is an improvement over the market return of 12%. The determination of return on the stock is important not only to balance out the portfolio, but also to enable the investor to determine the value of the stock. Knowing the value will enable the investor to decide whether or not he should purchase (or sell) the stock at the current market price. The expected rate of return is useful in the discounted dividend stock valuation method. Assume the stock’s regular per share cash dividend is $1 per annum without further growth, then the stock is priced fairly at: The price of $ 7.14 is indicative of the value of the investment at the time of consideration, and it may or may not be equal to the price of the stock presently prevailing in the market (exchange). This is then the basis for deciding what investment action to take in the asset. If the market price is presently $9 then the market overvalues the stock, and it would be a good time to sell the stock, but not a good time to buy. On the other hand, if the market price were $6, then the market underprices the stock and it would be a good time to buy, but not to sell, the stock. The CAPM is a theoretical model and like all theoretical models depends on some important assumptions. The following eight