The exams are getting tougher everyday, i can't miss this opportunity I've heard a lot about his good works in the life of certified projects Managers across the states
I've been struggling to understand this for three weeks. My 15 year tenured professor took 5 class periods trying to explain it and I still was failing to understand this concept... you explained it in 5 minutes and I think I finally have an understanding of it. Thank you!
This is the best capm explanation so far. I watched the other two above you and they were inferior. I think it's because you explain exactly what the jargon mean. Why do we take the US bond rate as our risk free rate? Oh, because they're unlikely to default, got it! And etcetc... It helps paint a story and makes sense of the equation. Thanks a lot.
Hi there, It looks like there is an error in here. If the actual historic average return of a stock is well above the expected return as per the CAPM model then the stock is OVERVALUED not undervalued as per the video. This is because the CAPM is a time constrained model looking only at single period returns. Please confirm your position on this?
It seems like no one else have picked this out. AND Why returns above the security market line is UNDERVALUED and returns below the security line is OVERVALUED ?
If a stock's price is above the SML, it means that the market values the stock at a higher expected return than the CAPM suggests based on its systematic risk (beta). shouldnt be the stock over-valued? :I can anyone explain please why it was stated undervalued in the video? :I thank youu
Think like this way, at a given risk,snp500 gives 15% and plug power gave you 5%. From your point of view,how would you see plug power stock? Overvalued right? She mentioned it but I missed out@@nowellryan
Could you please explain how to calculate an unlevered beta, i.e. the beta of the equity in a firm? Aswath Damodaran has always warned against using Bloomberg betas in DCF valuations.
thank you, i have a question! the way you calculated the capm for amazon, i had a reversed question was given 6 actions each one with its own beta, expected return , and expected return calculated trough capm. the question was to represent the values given in a graph , and to classify the 6 actions (over evaluated or the opposite) i'm sorry if my English isn't understandable or if i wrote a weird sentence my language is frensh.
Thank you for your comment! To answer the question you should compare each actual expected return to the theoretical one calculated through the capm. If the actual is greater than the theoretical, the stock is undervalued and viceversa. Hope this helps! :)
Thank you! If you were to use Alibaba (nyse) as an example, would you still use the US treasury bond yield as the risk free rate or would you use the China government bond yield instead since it is a Chinese company?
Excellent question! I would use the US t-bill as a risk free proxy, although nowadays Chinese government bonds are more mainstream as an asset class I would still consider them riskier than t-bills
I think you've confused "the expected market return" for the equity risk premium. An ERP is what you'd ask as an investor as a premium to put your money into an asset that's not risk-free.
@@BrainyFinance You're most welcome. The thing with the regression betas that come from the Bloomberg terminal, they're backward-looking, they reflect the past. You can also estimate the beta of your company's equity, the sector/business the company's in, and an unlevered beta of the equity in your company.
Does anyone in the industry actually take CAPM as a meaningful calculation to make buy/sell decisions? Both of the sources for the RF and B are subjective. Also, CAPM says nothing about economic or business cycles. Personally, I think this formula is useless unless, perhaps, used in comparison to other firms within the same industry. But if I'm considering buying a stock its unlikely that I'm going to weight on CAPM to make a purchase decision after I performed proper industry analysis based on more concrete factors. I think the same can be said for other financial metrics like the Sharpe ratio or the PE ratio. They're nice in theory but they don't reflect reality very accurately. I'd love to hear your thoughts on the matter.
I ask you a key question: Ra = Rf + Beta * (Rm - Rf) Ra = 5% with price of stock a $15 Rf = 3% with market value of bond market $100*10^6 Rm = 7% with market value of stock market $100*10^9 and Beta = 0.5 So, CAPM is relative equilibrium, i.e. 5% = 3% + 0.5 * (7% - 3%), and it is wondered how to exchange stock return Ra for stock profits $Ra for real capital asset pricing? In reality, this is a key mistake of CAPM.
6. Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of 0.3, and a beta coefficient of 1.5. Security B has an expected return of 12%, a stand ard deviation of returns of 10%, a corretation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier! Why? Can you give me an answer to this ?. Is it SD / Expected Return ...then the lowest value is the less risky ?. Is it?.
Thank you for your comment! In your example I would say security A is riskier since it has a higher standard deviation and a higher Beta (which measures market risk). Also if you calculate the sharpe ratio (as the ratio between the expected return and the standard deviation) you will see that security B offers higher risk-adjusted return (1.2 vs 0.2). Hope this helps :)
@@BrainyFinance can we take the coefficient of variation of expected return to calculate risk ? Then the A is 5 & B is 0.833 ? Then can we say the most riskier is A ?.
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You summarized what my professor tried to explain for 2 hours in 5 minutes. Amazing explanation thank you!
Got a Masters' in Finance and this is a much, much better explanation of CAPM compared to how I was taught in Uni. Thanks!
I am taking an intro to finance class at Harvard and this was video was so much more helpful than all the books im trying to refer! Thank you!!
This made my day! Thank you for letting me know :)
Fancy school! What's your major?
@@BrainyFinance what’s your name
Do you really need to mention Harvard! @Nirali, Don't tell us about your personal life.
@@mcdonalddaniel1799envy doesn’t look good on pretty your face, babe
They say third times a charm, am officially a Capm🎉🎉 for all my repeat test takers don't give up and don't be discouraged.
I have sat for CAPM for the 2nd time now and still failed, i guess CAPM Certificate isn't meant for people like me😭
The exams are getting tougher everyday, i can't miss this opportunity I've heard a lot about his good works in the life of certified projects Managers across the states
Please how can I reach this man I’m really in need of his help🤲
His info
Telegram
I've been struggling to understand this for three weeks. My 15 year tenured professor took 5 class periods trying to explain it and I still was failing to understand this concept... you explained it in 5 minutes and I think I finally have an understanding of it. Thank you!
My prof. couldn't explain it this simple on a masters level, you’re great, thanks.
Always kept messing up valuation questions, this video finally made me understand how a stock may be over/under valued! Tysm
the fastest and most comprehensive explanation of the CAPM you can find on the net, congratulations
This means so much to me! Thank you for your feedback :)
I watched some videos about the CAPM, you are the best person who actually explained it so far, thank you soooo much for helping me out
Looked all over and this was the best and simplest explanation
I was looking to revise my knowledge of CAPM and Stock Valuation. This video is just right!
Thank you! It means so much to me to know that this content is helpful ☺️
it was perfect, short but fully explained with example. I have seen lot of videos, all much longer and not even half the value.
I'm preparing for the CFP Exam and this explanation is very simple!! Thank you! 😊
Excellent video, clear concise explanation. Thank you!
This is the best capm explanation so far. I watched the other two above you and they were inferior. I think it's because you explain exactly what the jargon mean.
Why do we take the US bond rate as our risk free rate? Oh, because they're unlikely to default, got it! And etcetc...
It helps paint a story and makes sense of the equation. Thanks a lot.
Liked, you made it very easy to understand!
Understandable and succinct, why do I even go to uni when we've got this? Bravo!
That's a lovely thing to say :) tysm!
Mam I was confused regarding negative beta but after watching your efficient video I got everything about negative beta thank u .
That's great to hear! Thank you for letting me know 😊
Way clearer than my teachers
Beautiful, simply, natural, accurate,profesional explain. Keep doing videos. You encourge to much. Congratulations. Att.
If I could give this video 1000 likes, I would! 👏👏👏
Spent 3 weeks struggling with certain concepts CAPM being one and you nailed it in…5 minutes? 🐐
Thank you so much :D
Great explanation, thank you for making it easy and understandable
Perfectly and clearly explained.
Loved every bit of the explanation! Thank you! Really cleared up my confusion.
Smartly explained with real life example. Great 👍❣️
Thanks, this helped me understand the CAPM and how it relates to cost of equity
Beautifully explained especially that graph which I found nowhere on YT.
Thanks from India !
Thank you so much! Do you mean the Undervalued/overvalued graph?
Security Market line and depiction of beta factor along with under/overvalued !
Thank you! I do think that graph is so important to understand why the CAPM was created in the first place: i.e. pricing!
Wow, that was very explicit. Thanks and I will like you to do another video on how to value a company
Thank You!! I have spent hours trying to understand this - I can't believe you cleared up all of my confusion in 5 mins!! I'm subscribing right now!!
very clear and nicely presented. I hope you will make a series on equity valuation or portfolio management. Thanks!
That's the plan! Thank you so much for leaving me feedback
You're helping me so much during my equity training at Bloomberg! Well explained, thanks!
Thank you for such clear presentation
I like your examples of S&P and stocks! it makes everything easy to understand, thank you, you intelligent and gorgeous lass
Your comment made my day! Thank you :)
U made the concept very easy ...thank you very much
Thank you for your lovely comment ☺️
Complete and clear explanation. Thank you for this kind of video, they are really well made.
Extremely well explained. Thank you.
Very helpful video, Thank you! I feel more informed about the use of this formula
Hi there, It looks like there is an error in here. If the actual historic average return of a stock is well above the expected return as per the CAPM model then the stock is OVERVALUED not undervalued as per the video. This is because the CAPM is a time constrained model looking only at single period returns. Please confirm your position on this?
It seems like no one else have picked this out. AND Why returns above the security market line is UNDERVALUED and returns below the security line is OVERVALUED ?
Congratulations! You got 1 more subscriber... 😊👍👍
Very helpful, thank you for explanation.
So useful info, thanks and appreciate your explanation
My prof spent more than 3 hours explaining this in class and I didn’t understand a thing😢 Thank you for the video ❤
this video really helped me, thank you.
BRILLIANT! Thank you! Best CAPM video on RUclips! And I've seen ALL OF THEM!
SUBSCRIBED!
That's so nice to hear that you found the video useful, it really means a lot to me. Welcome to the channel!
great job, very useful video
very very well done, many thanks 🙏🏻
Excellent video!!
crisp and perfect..
Great video which has helped to cement my knowledge, thank you! I also found it strangely cathartic after spending hours in the textbooks 😄
Great and simple explanation !! thanks !!
Thank you so much! So glad it was helpful :)
Congrats. Very clearly and well explained.
Thank you ☺️ it means a lot to me
Thanks a lot for the video!
love it! simple, clear and on point!
Thank you I really appreciate it!
Nicely explained!
Very nice! Thank you for sharing your knowledge.
Thank you for your comment and welcome to the channel 😊
Excellent!
Cool Explanation.....!!!
awesome video! thank you
GREAT VIDEO!
Thanks, very clear
very clear explanation !
That's awesome, I am glad you think so!
You made it clear
Very useful
Awesome!
Why are you not making any new vids? Missed you!!
Please make more video for finding intrinsic value dividend method
If a stock's price is above the SML, it means that the market values the stock at a higher expected return than the CAPM suggests based on its systematic risk (beta). shouldnt be the stock over-valued? :I can anyone explain please why it was stated undervalued in the video? :I thank youu
I have the same concern!
Think like this way, at a given risk,snp500 gives 15% and plug power gave you 5%. From your point of view,how would you see plug power stock? Overvalued right? She mentioned it but I missed out@@nowellryan
Hi there. Iim wondering if you can talk about the alpha in a regression model. Good video btw.
amazing video
Thank you :)
Could you please explain how to calculate an unlevered beta, i.e. the beta of the equity in a firm?
Aswath Damodaran has always warned against using Bloomberg betas in DCF valuations.
Hi could you please tell the concept of time value of money in SML?
Hi thanks for the video . Quick question with regards to the s&p average returns. Is it a standard to use 20years? Can i use 10years, 5 years etc.
lovely! I'm a CFA candidate and this was such a great revision for me, loved the way u explained, can we connect over social media?
Thank you for the positive feedback! I'm very happy you found it useful. The social for this channel is a work in progress as we speak, stay tuned! :)
I am a little confused regarding modes of Asset pricing model. Does shape's index also include in Asset pricing model?
I love you
thank you for it, we how to find currency uper value or lower value , thanks
Hi, many thanks for ur succinct explain, however, I was wondering how should we determine Rf concerning it is 10 / 20 years of bond yield
? Tks
And the reason that we use S&P return is that Amazon is one of them, am I correct? Tks
Hi, would you mind explain how to calculate the average return of Amazon?
Let me just stand on my table and shout, "Oh captain, my captain"🙏
Please how did you get the average expected return for 20years? Like where did the 79% come from?
Thanks!
How to calculate market return? please help me in this regard
Best wishes
May you explain APT?
Thank you
thank you, i have a question! the way you calculated the capm for amazon, i had a reversed question
was given 6 actions each one with its own beta, expected return , and expected return calculated trough capm.
the question was to represent the values given in a graph , and to classify the 6 actions (over evaluated or the opposite)
i'm sorry if my English isn't understandable or if i wrote a weird sentence my language is frensh.
Thank you for your comment! To answer the question you should compare each actual expected return to the theoretical one calculated through the capm. If the actual is greater than the theoretical, the stock is undervalued and viceversa. Hope this helps! :)
that's what i thought , thank you so much.
GOGY is a strong contender in the fast-growing energy drink market, with a 200% return since the launch.
Legend
Thanks❤
Thank you! If you were to use Alibaba (nyse) as an example, would you still use the US treasury bond yield as the risk free rate or would you use the China government bond yield instead since it is a Chinese company?
Excellent question! I would use the US t-bill as a risk free proxy, although nowadays Chinese government bonds are more mainstream as an asset class I would still consider them riskier than t-bills
@@BrainyFinance Amazing thanks!
God bless you all always.
You love ans remember God with your pure heart.
I think you've confused "the expected market return" for the equity risk premium. An ERP is what you'd ask as an investor as a premium to put your money into an asset that's not risk-free.
That's a really good point! I might have rushed through the difference so thank you for pointing it out! :)
@@BrainyFinance You're most welcome. The thing with the regression betas that come from the Bloomberg terminal, they're backward-looking, they reflect the past. You can also estimate the beta of your company's equity, the sector/business the company's in, and an unlevered beta of the equity in your company.
Now I'm confuse
What does it mean if the question says assume both stock are correctly priced?
Thank you for your comment! Could you please write the whole question?
Does anyone in the industry actually take CAPM as a meaningful calculation to make buy/sell decisions? Both of the sources for the RF and B are subjective. Also, CAPM says nothing about economic or business cycles. Personally, I think this formula is useless unless, perhaps, used in comparison to other firms within the same industry. But if I'm considering buying a stock its unlikely that I'm going to weight on CAPM to make a purchase decision after I performed proper industry analysis based on more concrete factors. I think the same can be said for other financial metrics like the Sharpe ratio or the PE ratio. They're nice in theory but they don't reflect reality very accurately. I'd love to hear your thoughts on the matter.
So why do you subtract RF
I tried this and it is not working as you worked it out for me.
(1.7%+1.2%*13%-1.7%)
❤
Thanks for watching!
♥️😊👍🏻
I ask you a key question: Ra = Rf + Beta * (Rm - Rf)
Ra = 5% with price of stock a $15
Rf = 3% with market value of bond market $100*10^6
Rm = 7% with market value of stock market $100*10^9
and Beta = 0.5
So, CAPM is relative equilibrium, i.e. 5% = 3% + 0.5 * (7% - 3%), and it is wondered how to exchange stock return Ra for stock profits $Ra for real capital asset pricing?
In reality, this is a key mistake of CAPM.
thankssssssssssssssssssss
6. Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of 0.3, and a beta coefficient of 1.5. Security B has an expected return of 12%, a stand ard deviation of returns of 10%, a corretation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier! Why? Can you give me an answer to this ?. Is it SD / Expected Return ...then the lowest value is the less risky ?. Is it?.
Thank you for your comment! In your example I would say security A is riskier since it has a higher standard deviation and a higher Beta (which measures market risk). Also if you calculate the sharpe ratio (as the ratio between the expected return and the standard deviation) you will see that security B offers higher risk-adjusted return (1.2 vs 0.2). Hope this helps :)
@@BrainyFinance yeah i got it .....thank you very much sister ❤
@@BrainyFinance can we take the coefficient of variation of expected return to calculate risk ? Then the A is 5 & B is 0.833 ? Then can we say the most riskier is A ?.
Exactly! Really good point :)
@@BrainyFinance thank you so much ❤😍