Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 19 views

    Capital Asset Pricing Model - CAPM

    Uploaded by

    Sylvia Shirapova
    The Capital Asset Pricing Model (CAPM) is a model used to calculate the expected return of an asset based on its risk. It takes into account the risk-free rate of return and the expected market risk premium. The model represents compensation for risk as the difference between the market return and risk-free rate multiplied by the asset's beta, a measure of the asset's volatility relative to the overall market. CAPM is widely used to price risky securities, estimate expected returns, and calculate costs of capital for assets like stocks.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Capital Asset Pricing Model - CAPM

    Uploaded by

    Sylvia Shirapova
    19 views2 pages
    The Capital Asset Pricing Model (CAPM) is a model used to calculate the expected return of an asset based on its risk. It takes into account the risk-free rate of return and the expected market risk premium. The model represents compensation for risk as the difference between the market return and risk-free rate multiplied by the asset's beta, a measure of the asset's volatility relative to the overall market. CAPM is widely used to price risky securities, estimate expected returns, and calculate costs of capital for assets like stocks.

    Original Description:

    CAPM

    Original Title

    'Capital Asset Pricing Model - CAPM'

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The Capital Asset Pricing Model (CAPM) is a model used to calculate the expected return of an asset based on its risk. It takes into account the risk-free rate of return and the expected market risk premium. The model represents compensation for risk as the difference between the market return and risk-free rate multiplied by the asset's beta, a measure of the asset's volatility relative to the overall market. CAPM is widely used to price risky securities, estimate expected returns, and calculate costs of capital for assets like stocks.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    19 views2 pages

    Capital Asset Pricing Model - CAPM

    Uploaded by

    Sylvia Shirapova
    The Capital Asset Pricing Model (CAPM) is a model used to calculate the expected return of an asset based on its risk. It takes into account the risk-free rate of return and the expected market risk premium. The model represents compensation for risk as the difference between the market return and risk-free rate multiplied by the asset's beta, a measure of the asset's volatility relative to the overall market. CAPM is widely used to price risky securities, estimate expected returns, and calculate costs of capital for assets like stocks.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    What is the 'Capital Asset Pricing Model - CAPM'

    The capital asset pricing model (CAPM) is a model that describes the
    relationship between systematic risk and expected return for assets, particularly
    stocks. CAPM is widely used throughout finance for the pricing of risky securities,
    generating expected returns for assets given the risk of those assets and
    calculating costs of capital.

    BREAKING DOWN 'Capital Asset Pricing Model - CAPM'


    The formula for calculating the expected return of an asset given its risk is as
    follows:

    The general idea behind CAPM is that investors need to be compensated in two
    ways: time value of money and risk. The time value of money is represented by
    the risk-free (rf) rate in the formula and compensates the investors for placing
    money in any investment over a period of time. The risk-free rate is customarily
    the yield on government bonds like U.S. Treasuries.

    Find out which online brokers offer stock valuations in our new Brokerage
    Review Center.

    The other half of the CAPM formula represents risk and calculates the amount of
    compensation the investor needs for taking on additional risk. This is calculated
    by taking a risk measure (beta) that compares the returns of the asset to the
    market over a period of time and to the market premium (Rm-rf): the return of the
    market in excess of the risk-free rate. Beta reflects how risky an asset is
    compared to overall market risk and is a function of the volatility of the asset and
    the market as well as the correlation between the two. For stocks, the market is
    usually represented as the S&P 500 but can be represented by more robust
    indexes as well.

    Read more: Capital Asset Pricing Model


    (CAPM) http://www.investopedia.com/terms/c/capm.asp#ixzz4lGE6i7XJ
    Follow us: Investopedia on Facebook

    You might also like