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Essay / Research Paper Abstract
This 25 page paper looks at different ways in which investments may be appraised, with special attention paid to risk free investors. The paper starts with the consideration of risk and reward and then looks at modes which deal with the time value of money, such as net present value. Internal rate of return and the dividend discount model. The paper then looks at tools that have a greater measure of risk, including the capital asset pricing model and the Edwards-Bell-Ohlson model. The conclusions looks at the value these provide for an investor in the decision rewarding capital investments. The bibliography cites 12 sources.
Page Count:
25 pages (~225 words per page)
File: TS14_TEiapprase.rtf
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Unformatted sample text from the term paper:
Asset Pricing Model 15 2.3.1 Mean Variance Model 15 2.3.2 Capital Asset Pricing Model Development 18 3. Conclusion 26 References 27 Figures Figure 1 Risk and reward relationship 2 Equation 1 EBO Equation 13 Figure 2
Point of Tangency 16 Figure 3 Introduction of a new stock into the tangency portfolio 24 1. Introduction The way in which investment decisions are
made will be with reference to many different aspects. Knowledge regarding the characteristics and performance of the investment choices, issues such as term and available finds, opportunity cost and the
risk of that investment. The decision making prices for a risk adverse investor will include an assessment of the different types of risk and exposure to those risk. Models used
will help to identify and compare possible investment choices in order for the investor to choose that with the best risk profile. In all cases investment decisions will be
made with regard the maximisation of the return. When considering this there is always going to be the aspect of risk and reward. As the risk increases the potential
reward also has to increase. If there were not a potentially greater reward for the risky investments then there would be no incentive for the investor to take the extra
risk. The level of the extra return related t the risk is known as the risk premium. If this were to be placed on a graph we would see the
following; Figure 1 Risk and reward relationship For the risk adverse investor their potential reward is likely to be at the
lower end of the scale as they will not want to accept the risk that accompanies the potential increase in the reward. At the lower end of the line close
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