Capital Asset Pricing Model

This video discusses the Capital Asset Pricing Model (CAPM).

The Capital Asset Pricing Model can be used to determine the expected rate of return for a security. Here is the formula for the Capital Asset Pricing Model:

Expected Return = Risk-free Rate + Beta * (Expected Market Return - Risk-free Rate)

The expected return of a security is thus a function of: (1) the risk-free rate, (2) the systematic risk of the security (beta), and (3) the market risk premium (the expected market return minus the risk-free rate).—
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