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Capital Assest Pricing Model Formula

The capital assets pricing model (CAPM) favors a form to calculate the expected payback of an asset-based on the period value of money and the risk of systematic investment. It is basically used in funds to price the risk of collateral and return on that investment when seeing the cost of capital and the risk.

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Capital Assest Pricing Model Formula

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  1. Capital Asset Pricing Model Formula

  2. Capital Asset Pricing Model Formula • What is Capital asset pricing model? • The capital assets pricing model (CAPM) formula favors a form to calculate the expected payback of an asset-based on the period value of money and the risk of systematic investment. It is basically used in funds to price the risk of collateral and return on that investment when seeing the cost of capital and the risk. Risks are of two types: • Systematic risk, and   • Unsystematic risk Systematic risk is also known as market risk. It is essential to the market exclusively. Systematic risk consists of: • Interest rate risk • Exchange rate risk • Purchasing power risk • Market risk

  3. Unsystematic risk is also known as specific risk and diversifiable risk. It is an uncertainty of financing in the industry. • Unsystematic risk consists of: • Financial risks, and   • Business risk Given below is the formula of Capital Asset Pricing Model ERi = βi(ERm-Rf) Where, ERi = return of the investment Rf = risk – free rate  βi = beta of investment ERm = return of the market (ERm – Rf) = to calculate the market risk premium, we have to subtract the risk-free rate from the expected return of the investment. • The advantages of capital assest pricing model involve the accounts of systematic risks and it can be understandable and can be used easily.

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