Capital asset pricing model (CAPM)


The big picture

The capital asset pricing model (CAPM) is a method of expressing the relation between risk and return for all types of equity. It brings together the risk of a security (often shares) – or a portfolio of securities – and the required return of a security given its risk. The risk of any type of equity is considered to consist of systematic risk, sometimes referred to as market risk or undiversifiable risk, and unsystematic risk, sometimes referred to as company or investment specific risk. According CAPM any provider of equity (either the company owner or an investor) will expect returns ...

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