Capital Asset Pricing Model , Financial Management

What is Capital Asset Pricing Model? Please provide me report on Capital Asset Pricing Model. It is about 2000 words count report on topic Capital Asset Pricing Model.

Posted Date: 2/14/2013 12:26:16 AM | Location : United States





Definition of ''Capital Asset Pricing Model - CAPM''

A model that explains the relationship among risk and expected return and that is utilized in the pricing of risky securities.

The common idea behind CAPM is that investors need to be compensated in two ways: time value of money and risk. The time value of money is presented by the risk-free (rf) rate in the formula and compensates the investors for placing money in any type of investment over a period of time. The rest half of the formula represents risk and calculates the amount of compensation the investor requirements for taking on additional risk. This is computed by taking a risk measure (beta) that compares the returns of the asset to the market over a period of time and to the market premium (Rm-rf).

Posted by | Posted Date: 2/14/2013 12:27:16 AM


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