Risk and Return on Equity and the Capital Asset Pricing Model

John B. Guerard and Eli Schwartz
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John B. Guerard: McKinley Capital Management, Inc.
Eli Schwartz: Lehigh University

Chapter Chapter 14 in Quantitative Corporate Finance, 2007, pp 337-364 from Springer

Abstract: Abstract Individual investors must be compensated for bearing risk. It seems intuitive that there should be a direct linkage between the risk of a security and its rate of return. Overall investors should be interested in securing the maximum return for a given level of risk, or the minimum risk for a given level of return. The concept of such risk-return analysis is the efficient frontier of Harry Markowitz (1952, 1959). If an investor can invest in a government security, which is backed by the taxing power of the Federal Government, then that government security is relatively risk-free. The 90-day Treasury bill rate is used as the basic risk-free rate.

Date: 2007
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DOI: 10.1007/978-0-387-34465-2_14

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