date:      2007-11-7
enter 21 century more and more people pay more attention on invest which can increase their value.  in fact people have many choices in the market what include public debt saving the money in bank invest the stock market invest treasury bills and so on.  as we know stock market has risk.  the stock markets have the higher risk than the treasury bill and saving money in the bank( treasury bill and saving money in the bank have the lowest risk in all of the invest dealing).  as a result a significant number of people invest to the stock company.  they are paying with real money and capital in the risk market therefore requires a higher return from the market portfolio than from treasury bills and bank.  people and the professional scholar often used the model and significant number theories to analyze the risk when they would to invest the stock market and stock companies.  different companies have the different feedback when they face to same risk.  economist invent many method used to found the profitable field of investment which is the low risks portfolio.  no one can foresee this theory would very grandness when william.f.sharpe and john lintner created capital asset pricing model for calculation capital rate of return until markowitz makes it perfect.  markowitz used this theory to the of investment portfolio theory and developed separately.  richard（2007）believed that the a simple interpretation of capm is that the expected rates of return demanded by investors depend on two things.  one is compensation for the time value of money (the risk-free rate).  another one is a risk premium, which depends on beta and the market risk premium.  in this essay we will discuss capm theory in the real world.  i am divided this essay into three part firstly i will introduce what is capm and the main point of capm and briefly show the formula means, secondly will emphasize analyze and discuss assumptions which of the capm.  i will use some data show why those assumptions are impossible.  in the thirdly part there is a new theory which is d of the capm.

capital asset pricing model (capm) is model used to calculate the return required by shareholder for each level of risk.  capm theory is the core of modern financial theories.  it is mainly to: the expectations of securities prices reasonable by forecast yield and standard equation help determine the prices of listed securities and estimate the macroeconomic changes on stock price.  william sharpe, set out this model (capm) in his 1970 book "portfolio theory and capital markets".  he was a famous economist who was the work of financial economist and, obtains nobel laureate in economics by this model.  this model analyze invest risk into two types of risk: it contains systematic risk and unsystematic risk (unique risk).  systematic risk a kind of market risks which can not be diversified away.  interest rate is a prominence example of systematic risks.  unsystematic risk another risk of invests risk.  also known as "specific risk", this risk is specific to individual stocks because different stocks have different specific risk.  as a result it can be diversified away as the investor increases the number of stocks in portfolio.  as what we said before capm model used to makes a plan which investor can accept both of risk and return.

capm has broad application in economics.  it usually used in the measure proceeds of stock, the valuation of the cost of capital, assessment of portfolio and the application of the var.  no matter how much we diversify our investments, it's impossible to get rid of all the risk.  capm helps us to calculate investment risk and what return on investment we should expect.  the capm calculation deals with both internal risk and external risks.  some professional economist believed that capm are much better appraisal tool than the net present value (npv) model, which utilizes only one discount rate for all investments and completely disregards their varying risk levels.

any economic model is simplified of complex economic issues, capm is no exception.  it will be the core assumption that all investors in the securities market as the initial preference, all that the same individuals.  this capital asset pricing model in the markowitz mean - on the basis of variance model developed from it also inherited portfolio theory assumptions.

the formula for calculating the expected rate of return according to the capm model is linear in nature. the formula is e(ri) = rf + ßi(rm – rf); e(ri) is represent the expected rate of return on an investment, rf is the rate of return on risk-free asset, ßi is an investment's beta, and (rm – rf) is the market risk premium.  assumptions of capm may be divided into tow part: empirical assumptions and theoretic assumptions. capm is a theoretic model.  it d on the theoretic assumptions. &nb