Discussion and Analysis of Financial TheoryContentA. Financial asset pricing modelB. Advantages and disadvantages of CAPMC. Security Market LineD. Systematic and unsystematic risk. Economic cycleF. Efficient Market HypothesisG. Efficient Market Hypothesis FirmsH. Selective advertising and stock prices – Discussion of question 1: a). Why do financial managers have difficulty applying the financial asset pricing model (FAPM) in financial decision making? What benefit does the CAPM bring to them? .IntroductionThe financial asset pricing model establishes a linear relationship between the required return on an investment and its systematic risk. It helps in the theoretical assessment of risk-return-profit by considering the market-specific risk estimated by Beta. The model was introduced by Jack Treynor in 1962, followed by William Sharp, Linter and Mossin as an extension of modern portfolio theory. Structure, expression and presentation The financial asset pricing model establishes a linear relationship between the required return on an investment and its systematic risk. It helps in the theoretical assessment of risk-return-profit by considering the market-specific risk estimated by Beta. The model was introduced by Jack Treynor in 1962, followed by William Sharp, Linter and Mossin as an extension of modern portfolio theory. The formal or calculation methodology is as follows: RM = Rf + Beta * (Rm-RF) Where, RM = market returnRf = Risk Free ReturnB= beta, which determines the sensitivity of the stock relative to the market. It takes into account the security market line and establishes a relationship between expected risk and return, reflecting how price is determined by the security. The downside...... middle of paper ...... in a very unrealistic manner and we saw prices crash as investors aggressively sold into the market in panic. Therefore, a new terminology has appeared in the market as News Traders. These news traders promote or market the news in such a way that they attempt to influence market participants to trade on the news. Sometimes we have seen that companies themselves appoint such traders and investor relations companies to create a price bubble in the market based on certain price sensitive information. Therefore, in light of the above scenarios, the efficient market hypothesis will not hold true if the people responsible for providing the information psychologically try to manipulate stock prices. In today's world practice, markets are very perfect and everyone is trying to generate excess returns by one or the other means..