question archive A model that calculates expected return based on expected rate of return on the market, the risk-free rate and the beta coefficient of the stock
A model that calculates expected return based on expected rate of return on the market, the risk-free rate and the beta coefficient of the stock
Subject:FinancePrice:2.86 Bought3
A model that calculates expected return based on expected rate of return on the market, the risk-free rate and the beta coefficient of the stock.
Select one:
a. Beta Model Calculation
b. Time Value of Money
c. Market Premium Model
d. Security Market Line Model
e. Capital Asset Pricing Model
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e. Capital Asset Pricing Model
Step-by-step explanation
CAPM is a model that describes and expected return based on expected rate of return on the market, the risk-free rate and the beta coefficient of the stock.
CAPM is calculated according to the following formula:
Where:
Ra = Expected return on a security
Rrf = Risk-free rate
Ba = Beta of the security
Rm = Expected return of the market
The CAPM formula is used for calculating the expected returns of an asset.
