CAPM stand for “Capital Asset Pricing Model” and is a common valuation method for stocks. What is CAPM? The Capital Asset Pricing Model, or CAPM, calculates the value of a security based on the expected return relative to the risk investors incur by investing in that security. How is CAPM calculated?
What is a capital asset pricing model (CAPM)?
A bedrock principle of all investing is that returns are directly proportional to risk. In other words, the more risk you take on, the higher returns you hope to earn. The capital asset pricing model (CAPM) helps investors understand the returns they can expect given the level of risk they assume.
What is CAPM & why is it important?
CAPM evolved as a way to measure this systematic risk. It is widely used throughout finance for pricing risky securities and generating expected returns for assets, given the risk of those assets and cost of capital.
