CAPM - Capital Asset Pricing Model
CAPM FORMULA
The linear relationship between the return required on an investment (whether in stock market securities or in business operations) and its systematic risk is represented by the CAPM formula.
Formulae Sheet:
E(ri) = Rf + βi(E(rm) - Rf)
E(ri) = return required on financial asset i
Rf = risk-free rate of return
βi = beta value for financial asset i
E(rm) = average return on the capital market
The CAPM is an important area of financial management. In fact, it has even been suggested that finance only became ‘a fully-fledged, scientific discipline’ when William Sharpe published his derivation of the CAPM in 1986
The linear relationship between the return required on an investment (whether in stock market securities or in business operations) and its systematic risk is represented by the CAPM formula.
Formulae Sheet:
E(ri) = Rf + βi(E(rm) - Rf)
E(ri) = return required on financial asset i
Rf = risk-free rate of return
βi = beta value for financial asset i
E(rm) = average return on the capital market
The CAPM is an important area of financial management. In fact, it has even been suggested that finance only became ‘a fully-fledged, scientific discipline’ when William Sharpe published his derivation of the CAPM in 1986
posted by RK at 9:24 PM
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