07 Dec

Security Market Line | Lambda | Capital Market Line | CA Final SFM

Risk, Return and Portfolio Theory

Security Market Line (SML)

When the expected rate of return as per CAPM is presented graphically it will be a straight line sloping upward. Such line is known as “Security Market Line” as explained below:

Lambda (λ)

 

 

Consider The Following Example

 

 

 

 

 

 

 

 

The above computed λ indicates that for each percent of market risk in the form of standard deviation, the risk premium should be 2.5%

Capital Market Line (CML)

When the expected rate of return is related to absolute risk of the stock, i.e. with the standard deviation, and presented graphically it will be a straight line sloping upward. Such line is known as “Capital Market Line” as explained below:

 

 

Or,

 

 

When CML is presented graphically, it also indicates a straight line sloping upward as explained below:

Latest Posts

Tips by CA Harish Wadhwani (Scored 93 marks in SFM)

Congratulations…!! CA Harish Wadhwani for scoring 93 marks in SFM (CA Final)

Securitization CA Final SFM (Strategic Financial Management)

Securitization CA Final SFM Securitisation a chapter in Strategic Financial Management (SFM). This is an important chapter from the CA Exam point of view as well. The concept has been explained with a comprehensive example, to make sure the concepts are very clear. It mainly talks about Debt Securitisation, Mortgage-Backed Securities, Securitisation Process, Credit Rating Continue reading

Things you should do before your CA Final Exams

Things you should do before your CA Final Exams Clearing CA Final Exam is clearly not a simple cake walk. You need to be extremely committed to attending your CA final coaching classes. As the subjects are numerous, you need to study your lessons as and when they’re taught your respective CA final Coaching class. Continue reading

CA Final SFM, quick preparation tips

CA final SFM has a few topics which carry a fine weight-age in each trial which are Foreign Exchange Risk Management, Capital Budgeting, Derivatives, and Portfolio Management. But in its place of starting with a topic keeping huge concepts start with a bit lighter note and extremely interesting niche i.e. Bold Valuation. Thereafter full acquisition Continue reading

Two Way Quotes | Forex | CA Final SFM

 A Two way Quote indicates a set of two different rates of exchange known as Bid Rate and Ask Rate. In a Two Way Quotes, the rate at which bank will buy the currency and the customer will sell the currency is known as Bid Rate. The rate at which bank will sell the Continue reading

What is an Exchange Rate | Direct Quote & Indirect Quote

 Exchange Rate A rate at which one currency can be exchanged with the other. It is a rate at which one currency expressed in terms of the other. It is a rate at which a currency can be bought or sold. Direct Quote & Indirect Quote

Corporate Valuation Basics | CA Final SFM

 Need for Corporate Valuation Along with the enterprise growth, number of stakeholders also grows. Presentation of annual financial statements becomes. Curiosity of the stakeholders to understand the ‘true worth’ of their enterprise becomes translated to the concept of ‘valuation’. The market analysts, financial intermediaries, and the academicians, also attempt to apply their valuation approaches Continue reading

Interest Rate Futures | Derivatives | CA Final SFM

 When Forward Interest Rate Agreements are regulated through the “Exchange”, it will become Interest Rate Futures. However, the mechanism of IRF is different from FRA. The system is designed in a manner that interest rate is made up as a marketable product. The following example, will clarify as to how interest rate futures are Continue reading