Description of CAPM. The Capital Asset Pricing Model CAPM was introduced by Treynor ('61), Sharpe ('64) and Lintner ('65). By introducing the notions of systematic and specific risk, it extended the portfolio theory. In 1990, William Sharpe was Nobel price winner for Economics. "For his contributions to the theory of price formation for financial assets, the so-called Capital Asset Pricing Model (CAPM)." The CAPM model says that the expected return that the investors will demand, is equal to:
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Southwest Airlines Products, Pricing, & Channels Paper Southwest Airlines Product, Pricing, & Channels Pricing Strategy Southwest Airlines’ uses an everyday low price, pricing model. The airline has built a reputation of being the cheapest major airline in the space. The cultivation of this very reputation is the reason behind the use of this pricing model. Southwest Airlines’ management wants the first thought people have when booking a flight to be “Southwest is the cheapest.”
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2 Finance Theories Taxonomy This document presents a taxonomy of selected finance theories developed in past 5 decades by academics, practitioners and scholars in the United States, Europe, Asia and Latin America. A total of 14 theories and models are synthesized in this work, organized in five tables with the same structure: Theories of capital structure; capital budgeting and cost of equity; asset valuation, financial behavior and international finances. Each table contains theories organized
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Discussion Issues and Derivations What is the cost of using excess capacity? Firms often use the excess capacity that they have on an existing plant, storage facility or computer resource for a new project. When they do so, they make one of two assumptions: 1. They assume that excess capacity is free, since it is not being used currently and cannot be sold off or rented, in most cases. 2. They allocate a portion of the book value of the plant or resource to the project. Thus, if the plant has a
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Introduction to pricing strategies 2 1.2 Introduction to Apple Incorporation 3 2. Skimming Price Strategy 3 2.1 What is Skimming Price Strategy? 3 2.2 When to use Skimming Price Strategy? 4 2.3 Benefits of Skimming Price Strategy? 5 3. Apple’s iPhone Strategy 6 3.1 Market Segment 7 3.2 Product Life Cycle and Elasticity of Demand 7 3.3 Brand Loyalty 9 3.4 Sales and revenues 9 4. Conclusion 11 5. References 11 1. Introduction 2.1 Introduction to pricing strategies
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produce useful evidence on how stock prices respond to information. Many studies focus on returns in a short window (a few days) around a cleanly dated event. An advantage of this approach is that because daily expected returns are close to zero, the model for expected returns does not have a big effect on inferences about abnormal returns. * Corresponding author. Tel.: 773 702 7282; fax: 773 702 9937; e-mail: eugene.fama@gsb.uchicago. edu. The comments of Brad Barber, David Hirshleifer, S.P. Kothari
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governed by a factor structure, the APT is a one-period model, created in 1976 by Stephen Ross, in which preclusion of arbitrage over static portfolios of these assets leads to a linear relation between the expected return and its covariance with the factors. The APT, however, does not preclude arbitrage over dynamic portfolios. Consequently, applying the model to evaluate managed portfolios contradicts the no-arbitrage spirit of the model. An empirical test of the APT entails a procedure to identify
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TOPIC 1: MARKET STRUCTURE AND MARKET POWER 1.1. Competitors Anyone that produces a substitute for a firm’s product. - Cross price elasticity: Measures the substitution degree of a product for another. P.E.>1 – The demand is elastic, a change in price is reflected as an even major change in demand. The extent of the variation is higher as higher is the substitution degree of a product for another. We can say two firms are competing when a price increase by one firm, drives its customers to the other
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cn/jzus E-mail: jzus@zju.edu.cn The Q theory of investment, the capital asset pricing model, and asset valuation: a synthesis MCDONALD John F. (College of Business Administration, University of Illinois at Chicago, Chicago, USA) E-mail: mcdonald@uic.edu Received Feb. 23, 2004; revision accepted Mar. 6, 2004 Abstract: The paper combines Tobin’s Q theory of real investment with the capital asset pricing model to produce a new and relatively simple procedure for the valuation of real assets
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computational approaches to financial problems using Microsoft Excel. It stresses the fundamentals of finance; provides students with a knowledge and understanding on the key finance subjects such as money market, return metric, portfolio modelling, asset pricing, etc.; and equips students with the essential techniques applied in financial calculations. Contents: 1. Lecture Topic 1: Money Market Instrument : Introduction to the course; Interest rate types;
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