Interest Free Investment Partnerships : A Model for Optimism?

Asset pricing in terms of expected returns and forgone opportunities is the cornerstone for conventional capital asset valuation. The question is: Under what conditions would a PLS contract (interest-free partnership) yield a rate of return exceeding that of the conventional CAPM? The model establishes theoretical foundations for investment partnership finance according to an interest-free, or Islamic version of, the Capital Asset Pricing Model (CAPM). Further, the model derives the following: the existence of an interest-free sharing contract necessarily yields a lower beta risk of investments compared with interest-bearing contracts. Yet, in order for the above to hold, capital lenders must require an established minimum partnership share inversely proportional to project risk and increasing with equivalent opportunity cost of capital