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November 17, 2017 at 11:10 am
So, I’m probably going to sound stupid but I still don’t quite understand CAPM. I get that you have a beta, risk free rates of return etc and then systematic and unsystematic risk, I can do the calculations for ungearing and gearing but I don’t know why you do that to find the cost of equity. I go through the calculations because I know how to do them but I want to understand why I’m doing them. I’ve watched the lectures and something isn’t clicking in my mind to make it all make sense! I’ve got a good understanding of everything else other than this and I don’t know why!!
John Moffat says
November 17, 2017 at 2:03 pm
The cost of equity is the return that shareholders demand, and the return they demand is determined by the level of risk in the shares.
The beta of equity is the measure of the riskiness and so it is this that determines the required return and hence the cost of equity.
The riskiness of a share is determined by the riskiness of the business (which is measured by the asset beta) but is made more risky by the gearing in the business.
For more than that I am afraid you are going to have to watch the lectures again, because I do explain in detail (and I do assume you have watched all of the lectures on cost of capital and on CAPM?).
November 17, 2017 at 2:11 pm
Yes I have, I think it’s just my brain not understanding it. I understand all the elements of it and how to do the calculations, it’s just the ‘why am I doing this’ side of things!
I think it’s something I need to keep going over so I’m going to re watch the lectures and read that chapter in my BPP book over the weekend.
November 17, 2017 at 2:36 pm
Do ask again next week if you are still unsure (but ask in the Ask the Tutor Forum – I don’t always see comments on lectures 🙂 )
November 22, 2016 at 1:54 am
The Business risk categories is also new because if we google the risk, then the major categories of risks in finance are systematic risk and Unsystematic risk (Business risk is coming under Unsystematic risk) as below:
“Systematic – Non diversifiable or uncontrollable by an org – Macro in nature
Interest rate risk
Purchasing power or inflationary risk
Economic, Securities market
Unsystematic – Diversifiable or controllable by an org – Micro in nature – Industry risk
Business/Liquidity risk – External and internal risk
Please clarify 🙂 I am confused for the categorization
Thanks as always,
November 17, 2017 at 2:38 pm
But I explain the difference between systematic and unsystematic risk in full in my lectures (and give examples), and the relevance !!!
You will never be asked to produce a long list of examples from Google, but you can certainly be expected to be able to explain the difference between systematic and unsystematic risk.
November 22, 2016 at 1:50 am
Why the model was named as “capital asset pricing model”? It could be named as Business Risk Beta etc.. because CAPM is unusual name and new for me 🙂
November 22, 2016 at 5:12 am
I didn’t invent the name! It is called that because the beta is what determines the prices of shares (i.e. capital assets).
January 20, 2016 at 12:59 am
Thank you for the great lecture 🙂 Just curious to know have Veeta and Peter cleared
ACCA ?? 🙂 Their names keep popping up each time. 🙂
January 20, 2016 at 7:56 am
Of course they have qualified 🙂
November 12, 2015 at 1:07 pm
I am repeating myself….But u are one of the best teachers I have ever had!!!!!!!!!!!!!!!!!!!!!!!!!!!! Thank you
November 12, 2015 at 1:23 pm
Thank you very much 🙂
December 3, 2013 at 4:54 pm
very helpful !
November 19, 2013 at 6:08 am
i am really impressed, i wish i had been there for the whole session in his classroom
June 5, 2013 at 12:30 pm
This is my first year listening to lectures on open tuition and I have to say you are superb. I totally get this paper and the way how you break it down to a level that we can understand it makes so much sense. It will certainly hep with the discussion part of this paper. Thank you so much. By the way, what other papers do you teach?
I love your classes, even though I can’t see you in the video you make us feel like we are there with you. And once in a ehile you gives us a little bit of humor. Claasic!
June 5, 2013 at 4:42 pm
Thank you 🙂
(I teach F2, F3, F5, F9 and P4)
October 25, 2013 at 4:09 pm
It is a shame that I only have p4 left to study with you Mr John! You are a fantastic lecturer! During the time I was doing F2 and F3, I was not very much aware of opentuition! I used to come on occasions, but I feel bad I didn’t fully study those papers here!
October 25, 2013 at 4:54 pm
That is very kind of you – thank you 🙂
May 8, 2013 at 8:38 am
cant watch the videos what could be the problem
May 8, 2013 at 8:43 am
The lectures are working fine – it could be your browser. Try a different browser.
March 3, 2013 at 9:35 am
I cannot open in my iPhone. Can someone help? Thanks.
March 3, 2013 at 10:45 am
it works fine on the iphone.. maybe your internet connection is slow??
restart your iphone and make sure you have the latest update
December 3, 2013 at 4:52 pm
Thanks for everything ! very helpful
November 1, 2012 at 9:00 am
People can someone help me, I can not access video lectures on this web. Please Please help
November 5, 2012 at 2:32 pm
@owensibuku, dude try a different explorer, this works perfect and try updating your Pc.
November 5, 2012 at 2:46 pm
@ai1989, i meant UPDATING lol 🙂
July 27, 2012 at 1:05 am
john moffat is my greatest hero
May 22, 2012 at 9:07 pm
these lectures are helping tremendously! thanks much.
April 29, 2012 at 4:06 pm
great job sir
April 11, 2012 at 4:19 pm
I donnt hear sound of vedio lecture. can u help.
December 2, 2011 at 11:00 am
A master class of not only how to teach accountancy, but to keep the listener engaged. Super John Moffat. God bless
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