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Capital Asset Pricing Model - CAPM
What does it mean?
A model describing the relationship between risk and expected return that is used in the pricing of risky securities. CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium. If this expected return does not meet or beat the required return then the investment should not be undertaken.
In Other Words...
There are books and research papers written entirely on CAPM and how to determine the risk premium for various securities.
Related Links
Beta: Know the Risk - Beta says something about price risk, but how much does it say about fundamental risk factors?
Related Terms
Beta | Capital Market Line | Cost of Equity | Jensen's Alpha | Risk Free Rate | Systematic Risk
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