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Briefly explain three practical uses of the capital asset pricing model.

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The practical applications of capital asset pricing model (CAPM) are as follows:
Determination of cost of capital e.g. cost of equity Ke = Rf + (Rm – Rf)Be
Where:
Be = equity beta factor
Valuation of securities by comparing the expected and required returns if ER > Required return
then the security is undervalued.
Capital budgeting decision is appraising the projects in terms of betas
Gearing adjustment between levered and unlevered firm.

Kavungya answered the question on April 16, 2021 at 12:37

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Briefly explain three practical uses of the capital asset pricing model.

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