Assignment on the Capital Asset Pricing Model



Assignment on the Capital Asset Pricing Model

Introduction

The CAPM is used for explaining the association between risk and expected return in order to determine the value of security. The CAPM model emphasizes that investors are compensated for bearing risky securities in form of receiving risk premium and risk free rate. It helps investors in making evaluating and measuring portfolio risks and returns. The formula for calculating return on security or asset is as follow:

Ra = rf + Beta * ( rm - rf )

rf = The risk free rate

rm = The expected rate of market ...