CAPM Formula

Capital asset pricing model (CAPM) is a model used in finance to determine the rate of return of an asset. The assessment is done to make decisions about adding assets to the company. The Capital asset pricing model formula for calculating the expected rate of return of an asset is given below. In general, CAPM formula is widely used throughout finance for the pricing of risky securities, generating expected returns for assets given the risk of those assets and calculating costs of capital.

Capital Asset Pricing Model Formula

Formula:

ra = rf + βa(rm - rf )

Where,
rf = Risk free rate
βa = Beta of the Security
rm = Expected market return


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