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There are four important purposes of analytical procedures.Identify each of these four purposes and, for each purpose, give a specific example of an analytical procedure that an auditor might perform.
CAPM (Capital Asset Pricing Model)
A model used to determine the expected return on an investment based on its level of risk, as well as the risk-free rate of return and the expected market return.
Risk Premium
The extra return expected by an investor for holding a risky asset compared to a risk-free asset, as compensation for the higher risk.
Diversifiable Risk
A type of risk that can be reduced or eliminated from a portfolio by holding a variety of investments.
Market Risk
The risk of losses in investments due to market conditions such as changes in interest rates, currency exchange rates, and stock prices.
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