The capital asset pricing model - or CAPM - is a financial model that calculates the expected rate of return for an asset or investment. CAPM does this by using the expected return on both the market and a risk-free asset, and the asset's correlation or sensitivity to the market (beta).
What is CAPM and why is it important?
The capital asset pricing model (CAPM) tries to estimate how much you can expect to earn given the amount of risk. The model is often used in conjunction with fundamental analysis, technical analysis and other methods of sizing up securities when making investment decisions.
What is the difference between WACC and CAPM?
How Are CAPM and WACC Related? WACC is the total cost cost of all capital. CAPM is used to determine the estimated cost of the shareholder equity. The cost of equity calculated from the CAPM can be added to the cost of debt to calculate the WACC.
What is CAPM and its assumptions?
CAPM Beta is a theoretical measure of the way how a single stock moves with respect to the market, by taking correlation between the both; market represents the unsystematic risk and beta represents the systematic risk.