Mathematical finance, Beta, Weighted average cost of capital

The realized return of a stock is consisted of two major components which are i) dividend and ii) capital gain or loss (Navarro, 2005). Dividend is referred to a portion of the earnings of a company. It is usually distributed to the shareholders as per the direction that is given by the board of directors of the company. On the other side, capital gain or loss refers to the increase or decrease in the value of the stock with respect to the price at which it was purchased.