# CAPM (Capital Asset Pricing Model)

Propose we only have the information of beta and expected return, if we know the value of the risk-free-rate, can we determine which one of the following stocks is priced higher.

Stock A : Beta 1.08, Expected Return 12.8%

Stock B : Beta 0.66, Expected Return 9.6%

https://brainmass.com/business/capital-asset-pricing-model/capm-capital-asset-pricing-model-132604

#### Solution Preview

CAPM (Capital Asset Pricing Model) gives

r(required return) = rf (RFR) + beta x MRP (Market Risk Premium)

So, there are 3 variables (RFR, beta and ...

#### Solution Summary

We use CAPM (Capital Asset Pricing Model) to determine which one of the stocks is priced higher.

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