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CAPITAL ASSET PRICING MODEL (CAPM) is an equilibrium model which describes the pricing of assets, as well as derivatives. The model concludes that the expected return of an asset (or derivative) equals the riskless return plus a measure of the assets non-diversiable risk ("beta") times the market-wide risk premium (excess expected return of the market portfolio over the riskless return). That is: expected security return = riskless return + beta x (expected market risk premium). It concludes that only the risk which cannot be diversified away by holding a well-diversified portfolio (e.g. the market portfolio) will affect the market price of the asset. This risk is called systematic risk, while risk that can be diversified away is called diversifiable risk (or "nonsystematic risk"). Unfortunately, The CAPM is more difficult to implement in practice than the binomial option pricing model or the Black-Scholes formula because to price an asset it requires measurement of the assets expected return and its beta. But, on the other hand, it also attempts to answer a more difficult question: The binomial option pricing model or the Black-Scholes formula asks what is the value of a derivative relative to the concurrent value of its underlying asset. The CAPM asks what is the value of an asset (or derivative) relative to the return of the market portfolio. Because of this, the option models are often referred to as "relative" valuation models, while the CAPM is considered an "absolute" valuation model. William Sharpe won the Nobel Prize in Economics principally for his role in the development of the CAPM.
CONTRIBUTION MARGIN PER UNIT, also known as dollar contribution margin per unit, is the selling price per unit minus the variable cost per unit. The "contribution" represents that portion of sales revenue that is not consumed by variable cost, thereby contributing to the coverage of fixed cost.
EXPECTATION GAP, in accounting, is the gap between an auditors actual standard of performance and the more rigorous public expectation of what an auditors performance should be. The users of financial statements should be allowed to expect that the auditors materiality levels correspond with their own. If this is not the case an expectation gap will arise. Especially if the financial statements contain non-corrected known errors or omissions classified as immaterial by the auditor, but classified as material by the users. The unknown material errors and omissions are still a part of the audit risk.
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