The capital asset pricing model - or CAPM - is a financial model that calculates the expected rate of return for an asset or investment.Beta · Systematic Risk Definition · Risk-free rate · Market Risk Premium
What is CAPM in finance formula?
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).
Why CAPM is a better method?
Advantages of the CAPM It is generally seen as a much better method of calculating the cost of equity than the dividend growth model (DGM) in that it explicitly considers a company's level of systematic risk relative to the stock market as a whole.