Sharpe’s Model of Capital Asset Pricing Model results in the cost of equity estimation. Sharpe’s model calculates the cost of capital by building a relationship between risk and return. As per the model, a risk-free return is expected out of every investment. The expectation is greater than that is based ... Read More

By the term financial leverage, we usually mean how much debt a firm has, or how ‘levered’ it is, in comparison to equity. This means also how much debt does a firm hold in its capital structure?Higher debt means high-interest payments and high-interest payments mean a lower profit. These high-interest ... Read More

Spread is an options trading strategy where a trader buys or sells multiple options of the same type (call or put) which have the same underlying asset but the expiration dates and strike prices or both may vary.Depending on the nature of options included, there are three types of spread ... Read More

The "market model" shows how the forces of demand and supply correlate with each other to measure the prices and the quantities that are sold in the market. The market model is very important because many other models of finance are derived from it, such as the forex market and ... Read More

The capital asset pricing model (CAPM) asserts that the anticipated return of a security is related to its beta. Beta is a representation of the systematic risk, which cannot be eliminated simply by means of diversification.According to CAPM, the term ‘beta’ simply means the covariance of a security’s return while ... Read More

Options are a great way to make money from short-term sales. However, one must be aware of the market and make a resilient strategy to gain profits from the options. There are definitely some risks while investing in options, but they can be minimized to a large extent. A "protective ... Read More

If the issuers of the underlying security of an option call early, the investors lose some money. A call premium is a compensation paid by the issuers to make up for the gap or loss suffered by the option holders. The premium is meant to balance the risk option owners ... Read More

A covered call is an options strategy for which one needs to hold a long position in the underlying asset, such as a stock while selling the call option on the underlying asset. By selling the call option, the investor generally locks the price in of the asset, to enjoy ... Read More

The classification of a security risk into "diversifiable" and "non-diversifiable" risks has come up from the portfolio approach of capital investment. It has culminated in the well-known and popular Capital Asset Pricing Model (CAPM), developed by Sharpe, Lintner, and others. According to this framework, the "diversifiable risk" is the risk ... Read More

If you create a contract and then file for bankruptcy, then the lender or creditor can file a "contingent claim" against your estate. A contingent claim that is based on some future event can be dealt with by the court in a number of ways.Certain Conditions Must be MetFor the ... Read More