Finance Assignment
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Genre: Finance

The expected return on a stock calculated using the CAPM is often used as an estimate of the cost of equity in the dividend discount model of share evaluation.

About the Book

Finance assignment is the assignment in which we learn that  the value of money varies with time as same as in stock market.

The CAPM method of share valuation has been widely used by the investors and analysts, but it has faced criticism in the recent past mainly because of the beta estimation process (Fama & French 1992). The limitations of the CAPM gave birth to other methods of share valuation. Let us look at some of the share valuation methods that do not have the limitations of CAPM:

The Fama-French model of share valuation is one such method where some of the limitations of CAPM are removed. The model was developed by Eugene Fama and Kenneth French. In this method, three factors are considered in the formula to get the expected returns. The formula used in this method is as follows (Fama & French 1992):

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