Chapter 13: The Capital Asset Pricing Model. Objective The Theory of the CAPM Use of CAPM in benchmarking Using CAPM to determine correct rate for discounting. Chapter 13 Contents. The Capital Asset Pricing Model in Brief Determining the Risk Premium on the Market Portfolio
What would risk premiums on securities be in equilibriumif people had the same set of forecasts of expected returns and risks, and all chose their portfolios optimally according to the principles of efficient diversifications?
Investors agree in their forecasts of expected rates of return, standard deviation, and correlations of the risky securities.
Investors generally behave optimally according to the theory of portfolio selection.
Cost of capital