Q » What is the capital asset pricing model (CAPM) and how is it used?

John

17 Oct, 2025

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A » The Capital Asset Pricing Model (CAPM) is a finance theory that describes the relationship between systematic risk and expected return for an asset, particularly stocks. It is used to determine a theoretically appropriate required rate of return of an asset, factoring in its risk relative to the market. CAPM is widely used in finance for pricing risky securities and calculating the cost of equity, aiding in investment decision-making.

Michael

17 Oct, 2025

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A »The Capital Asset Pricing Model (CAPM) is a financial model used to determine the expected return on an investment by accounting for its risk relative to the market. It calculates expected return as the risk-free rate plus the investment's beta (a measure of market risk) times the market risk premium. CAPM is widely used for assessing investment risks and aids in portfolio management, capital budgeting, and security valuation.

Daniel

17 Oct, 2025

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A »The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between the expected return of an investment and its risk. It is used to calculate the expected return on an investment based on its beta, the risk-free rate, and the expected market return. For example, if a stock has a beta of 1.2, the risk-free rate is 2%, and the expected market return is 8%, the CAPM would estimate the stock's expected return as 2% + 1.2 * (8% - 2%) = 9.2%.

Christopher

17 Oct, 2025

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A »The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between systematic risk and expected return for assets, particularly stocks. It is used to estimate a security's required return, aiding in investment decisions. The formula involves the risk-free rate, the stock's beta (volatility compared to the market), and the expected market return, helping investors gauge risk versus potential reward.

Joseph

17 Oct, 2025

0 | 0

A »The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between systematic risk and expected return on an investment. It is used to determine the required rate of return for an investment, helping investors make informed decisions by assessing risk and potential returns. CAPM is a fundamental tool in finance and investment analysis.

William

17 Oct, 2025

0 | 0

A »The Capital Asset Pricing Model (CAPM) is a financial model used to determine the expected return on an investment, reflecting its risk relative to the market. It calculates the expected return using the formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). For example, if a stock has a beta of 1.2, a risk-free rate of 2%, and an expected market return of 8%, its expected return would be 9.6%.

James

17 Oct, 2025

0 | 0

A »The Capital Asset Pricing Model (CAPM) is a financial model that calculates expected returns on investments based on risk. It relates expected return to beta, a measure of volatility relative to the market. CAPM helps investors assess risk and potential returns, making informed investment decisions by comparing expected returns to required returns.

David

17 Oct, 2025

0 | 0