Investors need to know how much risk they have to take to confidently expect a certain percentage return. Likewise, managers want to know what return shareholders require so that they can decide how to meet those expectations.

Respond to the following

• Select 2-3 of the topics below and discuss how they each influence financial decisions regarding risk and return:
• The capital asset pricing model (CAPM)
• The constant-growth model
• Compute forward-looking expected return and risk
• Risk premiums