# Capital Asset Pricing Model and Beta

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.

https://brainmass.com/business/capital-asset-pricing-model/512780

#### Solution Preview

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 ...

#### Solution Summary

The solution contains 307 words of text.