Capital asset pricing model (capm), Financial Management

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Capital Asset Pricing Model (CAPM)

Capital Asset Pricing Model (CAPM) is a model which utilizes the measure of systematic risk, 'B' to price assets. The expected rate of return is given by:

Ke = Rf + B x {Rf - Rm}

Where:

Rf = Risk free rate of return,

Rm = Market rate of return,

Ke = Expected rate of return,

B = Beta value for the stock

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