‘The Capital asset pricing model (CAPM) is a very useful model and it is used widely in the industry even though it is based on very strong assumptions. Discuss in the light of recent developments in the area.’

3. Basic Rules for completing the essay:


Please stick to the rules below when you draft the essay. Poor presentation will be penalised with a 5% reduction in the final mark of this assignment.


  1. The essay should be a minimum of 1,500 and should NOT exceed 2000 words. Make sure you are within the word limit


  1. The essay should be typed written. Use word or any other processor, but TYPE it!


  1. Font Size: MINIMUM 12PT. You can use larger font for headings but not for the document. Remember that when you print out small font it looks horrible as do larger (than 12pt) font!!!!


  1. Paragraphs should be DOUBLE SPACED!


  1. Use references from published work, i.e. books and more importantly academic journals (especially if you want a 2.1 or 1st class mark). Using only books may give you a passing mark. Using only websites may not even give you the passing mark.


  1. Be careful when you use sources (i.e. journals/books/websites) to refer to them in the document. Best way is through the use of footnotes were you write the name of the first author, the year of publication and the relevant pages you borrowed the saying or paragraph from. You need to do that even if you only used a word from someone’s work. You cannot present other peoples’ work as your own. Doing that, will be plagiarism, which is a serious offence, taken very seriously by the College and may lead to failing the course or even your degree!


  1. There is nothing wrong in using other people’s work as long as you refer to it. The more ideas you use, the better for you (regarding your mark) since it shows you are aware of the main literature/ideas out there! However, make sure that you also write your own thoughts! I know what other people say…what I am interested to read is what you think (and why) about this! So…blend information from other sources with your own work and you have set the grounds for a 1st class mark!


  1. The essay should have the following elements:


  1. a.      Introduction: here you briefly explain what the essay is about and how you intend to approach the issue – what follows in the essay.
  2. b.      Main concepts behind the problem and discussion: Here you have the opportunity to present the main theory behind the question, the main ideas, or the whole debate. Then (or along the presentation) you should express your own views, linking them with the other researchers’ and debate views/elements. In this part you can get very creative, but make sure the above are definitely included!
  3. c.       Conclusions: here you say what the essay’s purpose was and sum up all your arguments (made in section B above) in order to highlight the fact that you have addressed the main issues concerned with the essay question.
  4. References: Here you should list in Ascending alphabetical order ALL the references you have used or referred to in the document. Please see published papers on the style of presenting references (they are always included at the end of journal papers) and stick with a style. I would suggest the style used in the papers published in the Journal of Finance. Hint: download a paper from the Journal of Finance from the web/library and then do as they do with respect to references.
  5. 9.      Main Textbook:

Brealey, Myers and Marcus. Fundamentals of Corporate Finance, Mc-Graw Hill, 7th Edition.



Berk, J, DeMarzo, P & Harford. J (2009) Fundamentals of Corporate Finance, Pearson International

Brealey and Myers (2005) Principles of corporate finance, McGraw-Hill, 8th Edition.

Arnold, G, (2005) Corporate Financial Management, London, FT Publishing, 3rd Edition.


Useful papers:


Banz, R (1981) ‘The Relation between Return and Market Values of Common Stock’, Journal of Financial Economics, 9, 3-18


Berk, J.B (1995) ‘A Critique of Size Related Anomalies’, Review of Financial Studies, 8, 275-286


Fama, E & French, K (2002) ‘The Equity Premium’, Journal of Finance, 57, 637-659


Fama, E & Macbeth, J (1973) ‘Risk Return and Equilibrium: Some Empirical Tests’, Journal of Political Economy, 8, 607-636


Fama, E & French, K (1992) ‘The Cross Section Of Expected Stock Returns’, Journal of Finance, 47, 427-465


Fama, E & French, K (1993) ‘Common Risk Factors in the Returns on Stocks and Bonds’, Journal of Financial Economics, 33, 3-56


Graham, J & Harvey, C (2001) ‘The Theory And Practice Of Corporate Finance: Evidence From The Field’, Journal Of Financial Economics 60, 187-243


Kothari Et Al. (1995) ‘Another Look at the Cross Section Of Expected Stock Returns’, Journal of Finance, 50, 185-224


Roll, R (1977) ‘A Critique of the Asset Pricing Theory’s Test’, Journal of Financial Economics, 4, 129-176


Sharpe, W.F (1964) ‘Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk’, Journal of Finance 19, 425-442


Also read chapters 10, 11, 12 and 13 from Corporate Finance by Berk & DeMarzo (2007)


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