CAPM
Save
May 1, 2024
3 minute read
The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between the return on an asset and the risk of that asset. It is used to determine the appropriate rate of return on an investment, given its level of risk.
Applications of CAPM
CAPM is used in a variety of financial applications, including:
- Pricing assets: CAPM can be used to determine the fair value of an asset, based on its risk and the expected return on the market.
- Portfolio management: CAPM can be used to construct portfolios that are efficient in terms of risk and return.
- Capital budgeting: CAPM can be used to evaluate the cost of capital for a project, which is the rate of return that investors require to invest in the project.
- Performance evaluation: CAPM can be used to evaluate the performance of a portfolio manager, by comparing the portfolio's return to the CAPM-predicted return.
The CAPM Formula
The CAPM formula is:
ra = rf + βa * (rm - rf)
where:
Read More
Find a path to becoming a CAPM. Learn more at:
OpenCourser.com/topic/r3ttkj/cap
