What is the 'Capital Asset Pricing Model - CAPM'?

Capital Asset Pricing Model (CAPM) is a model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.

Sharper Insight. Smarter Investing. Manage Preferences TERM OF THE DAY 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 it Down: The general idea behind CAPM is that investors need to be compensated... Read More Related to "Capital Asset Pricing Model - CAPM" The Capital Asset Pricing Model: an Overview CAPM helps you determine what return you deserve for putting your money at risk. Read More How do I use the CAPM (capital asset pricing model) to determine cost of equity? Learn about the elements of the capital asset pricing model, and discover how to calculate a business' cost of equity financing with this formula. Read More The Advantages And Disadvantages Of The CAPM Model CAPM, while criticized for its unrealistic assumptions, provides a more useful outcome than either the DDM or WACC in many situations. Read More Related Definitions International Beta Better known as "global beta", international beta is a measure of the systematic risk or volatility of a stock or portfolio in relation to a global market, rather than a domestic market. Read More Market Risk Premium Market risk premium is the difference between the expected return on a market portfolio and the risk-free rate. Read More Security Market Line - SML A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky marketable securities. Also refered to as the "characteristic line". Read More William F. Sharpe An American economist who won the 1990 Nobel Prize in Economics, along with Harry Markowitz and Merton Miller, for developing models to assist with investment decision making. Read More You are currently subscribed as: mondemand.forex@blogger.com Unsubscribe  |  Manage Subscriptions Investopedia, LLC, A Division of IAC. 114 West 41st St, floor 8, New York NY 10036 Copyright © 2018, Investopedia, LLC. All Rights Reserved Follow Us: