The Capital Asset Pricing Model & CAPM
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In one page explain what you think is the main 'message' of the Capital Asset Pricing Model to corporations and what is the main message of the CAPM to investors?
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Solution Summary
The solution concisely explains what CAPM means to a corporation and what it means to an investor. It talks about systematic and unsystematic risks and the kind of risk CAPM deals with. It answers the question being asked and provides a good explanation of the basic CAPM concepts. 265 words.
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The Capital asset pricing model has been used very widely and has three important conclusions:
1. All assets must have at least a rate of return of a risk free bond. This is because no one would hold the risky asset if there is no incentive for anyone to hold the risky asset.
2. There is no expected return of taking on unsystematic risk as that risk can be easily diversified. ...
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