Financial management- CAPM

Discuss the problems that may be encountered in applying the CAPM in investment appraisal.

Problems that could have been discussed in connection with applying the CAPM in investment appraisal include:

Ø  Determining the excess market return
Ø  Determining the risk-free rate of return
Ø  Estimation of the equity and overall betas of a company
Ø  Determination of the beta for a project
Ø  The CAPM is a single-period model
Ø  The CAPM is an ex-ante model
Ø  National surrogates for market return may be intentionally inappropriate

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