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Multinational firms & CAPM

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1. What is the capital asset pricing model?

2. What is the basic message of the CAPM?

3. How might a multinational firm use the CAPM?

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The solution provides a detailed response regarding multinational firms and CAPM.

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1. What is the capital asset pricing model?

The CAPM quantifies the relevant risk of an investment and establishes the trade off between risk and return; i.e., the price of risk. It posits a specific relationship between diversification, risk, and required asset returns. In effect, the CAPM says that the required return on an ...

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