Alpha = R – R
Does CAPM include alpha?
The standard CAPM model The CAPM model is used to price equity investments, and explains excess returns (alpha) as a function of taking on greater risk. This is because investors need to be compensated for taking risks.
What is the formula for finding alpha?
To calculate the expected return on assets, you must utilize the CAPM formula: Expected return = risk-free rate + volatility/beta * (market return - risk-free rate).