Capital Financing and Allocation - Equity Capital

4 important questions on Capital Financing and Allocation - Equity Capital

What do equity sources of funding include?

  • Stockholders ;
  • IPO Initial Public Offering | Selling shares to investors
  • Self-funding;
  • Family or friends;
  • Private investors;
  • Venture capitalist;

What volatility characteristic does the CAPM model use?

CAPM model uses the observation of the volatility of the returns in the past. (Publicly traded companies)

Explain the concept of the CAPM model

Capital Asset Pricing Model
Return of a specific share Rs calibrated to the market risk and return.
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Give a visual representation of the CAPM model and the meaning of the variables;

  • SML | Security Market Line;
  • Rs | return of a specific share;
  • Rf  | risk-free rate;
  • Rm | return market portfolio;
  • B(eta)m | market risk;
  • B(eta)s | share to the market comparison;
  • ea | Cost equity;        

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