| Capital Asset Pricing Model - CAPM | |
 A model describing the relationship between risk and expected return that is used in the pricing of risky securities.  |
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 The CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium. If this expected return does not meet or beat the required return then the investment should not be undertaken. The security market line (SML) plots the results of the CAPM. There are books and research papers written entirely on the CAPM and how to determine the risk premium for various securities. |
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 Financial Concepts - Diversification? Optimal portfolio theory? Read this tutorial and these and other financial concepts will be made clear. Beta: Know the Risk - Beta says something about price risk, but how much does it say about fundamental risk factors? The Equity Risk Premium - Part 2 - See the model in action with real data and evaluate whether its assumptions are valid. The Equity Risk Premium - Part 1 - Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium. |
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Related Terms
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