How do I calculate the capital asset pricing model?
In order to calculate the Capital Asset Pricing Model (CAPM), you need to understand the relationship between expected return and risk. The formula for calculating CAPM is
Ri= Rf + βi(E[Rm]-Rf), where Ri is the expected return on the investment, Rf is the risk-free rate of return, βi is the systematic risk of the investment, and E[Rm] is the expected return of the market portfolio. In order to calculate the CAPM, you should use spreadsheet software such as Sourcetable.
What is the Capital Asset Pricing Model (CAPM)?
The Capital Asset Pricing Model (CAPM) is an economic model that describes the relationship between risk and expected return and that is used in the pricing of risky securities. It states that the expected return of a security is equal to the rate on a risk-free security plus a risk premium, which is based on the beta of that security.
What is the formula for CAPM?
The formula for CAPM is:
E(r) = rf + Î²(E(rm) - rf), where
E(r) is the expected return,
rf is the risk-free rate,
Î² is the security's beta, and
E(rm) is the expected return of the market.