The capital asset pricing model (CAPM) relates the risk return trade-off of individual assets to market returns so that a security has a risk-free rate of return and a premium for risk.
-Explain in detail the components of CAPM.
-Please also include the formula and an explanation of beta.
The capital asset pricing model is a way for an investor to look at the risk and return of an investment by evaluating the risk of the investment against both risk-free US Treasury bills and the stock market as a whole using the following formula: rf + b ( rm - rf ). The three components of the CAPM is the risk free rate, the beta coefficient and the expected market return. The risk free rate is the minimum return an investor ...
The solution contains 307 words of text.