what do you understand by capm model

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Accepted Answer

CAPM model stands for Capital Asset Pricing Model, used to determine the expected return on an investment based on risk and cost of capital.

CAPM model calculates the expected return on an investment by considering the risk-free rate, beta of the investment, and market risk premium.
It helps in determining if an investment is worth the risk by comparing the expected return with the required return.
The formula for CAPM is: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate).
It is widely used in finance to evaluate the potential returns of investments and to make informed decisions.
CAPM assumes that investors are rational and risk-averse, and that the market is efficient.

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