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Portfolio Management - Illustration 7
AFM
Hello Sir, In the Illustration 7, we are comparing the return as per CAPM and Expected return, but isnt the return as per CAPM is the expected return. Should we compare the CAPM return with the market return to decide on the investment?
Answers (2)
Expected return refers to the anticipated return on an investment based on various factors, such as historical performance, financial projections, market trends, and qualitative assessments CAPM is a widely used model that provides an estimate of the expected return of an investment based on its systematic risk, as measured by its beta e can compare the expected return with the estimated return from the CAPM model to assess whether the investment is expected to outperform or underperform the CAPM estimate. If the expected return is higher than the estimated return from CAPM, it may indicate that the investment is expected to perform better than what is predicted by the CAPM model, and vice versa. This comparison can provide insights into the risk-adjusted expected return of an investment and help investors make informed decisions about their investment choices.
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