Section outline

  • Welcome to "Risk, Return, and the Cost of Capital!" The module analyzes the trade-off between risk and return and its implications for the practical estimation of discount rates.


    risk return picture


    The main learning goals of this module are:
    • Understand the trade-off between risk and return.
    • Learn how we can reduce the risk of an asset via diversification.
    • Appreciate the basics of modern portfolio theory.
    • Get to know the Capital Asset Pricing Model (CAPM) to estimate expected returns.
    • See how to obtain the Weighted Average Cost of Capital, the most relevant discount rate in project and firm valuation.
    • The following document provides a comprehensive introduction to the topic and presents the structure of the module in greater detail: