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What is the capital asset pricing model?

Kevin Sutter

in Student Loans

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Kathy Robinson on July 1, 2018

Response . The CAPM is a pricing model of an individual security (asset) or a portfolio. For individual security perspective, we made use of the security market line (SML) and its relationship with the expected return and the systematic risk (beta) to show how the market must price individual securities in relation to their security risk class. The SML enables us to calculate the reward-to-risk ratio for any security in relation to the market in general. Therefore, when the expected rate of return for any security is deflated by its beta coefficient, the reward to risk ratio for any individual security in the market is equal to the market reward to risk ratio

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