The Capital Asset Pricing Model is a model that describes the relationship between risk and expected return, helping in the pricing of risky securities.
 | | Term of the Day | Words to Know | | |  | | Capital Asset Pricing Model (CAPM) | | The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital. | | Read More » | | Related to "Capital Asset Pricing Model (CAPM)" | | | | Expected Return | | Expected return is the amount of profit or loss an investor can anticipate receiving on an investment. Based on historical data, it's not a guaranteed result; rather, it's a tool used to determine whether an investment has a positive or negative average net outcome. | | Read More » | | | Security | | A security is a fungible, negotiable financial instrument that represents some type of financial value, usually in the form of a stock, bond, or option. | | Read More » | | | Cost of Capital | | Cost of capital is the required return a company needs in order to make a capital budgeting project, such as building a new factory, worthwhile. | | Read More » | | | Time Value of Money | | The time value of money is the idea that money presently available is worth more than the same amount in the future due to its potential earning capacity. | | Read More » | | | | | | CONNECT WITH INVESTOPEDIA | | | | | | | |
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