Capital Asset Pricing Model (CAPM) | Formula, Examples | Calculation

Опубликовано: 08 Октябрь 2024
на канале: WallStreetMojo

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In this video on Capital Asset Pricing Model (CAPM), we are going to understand this topic in detail including its formula, examples and calculation.

𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭 𝐏𝐫𝐢𝐜𝐢𝐧𝐠 𝐌𝐨𝐝𝐞𝐥 𝐅𝐨𝐫𝐦𝐮𝐥𝐚
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Ra = Rrf + Ba (Rm Rrf)

𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭 𝐏𝐫𝐢𝐜𝐢𝐧𝐠 𝐌𝐨𝐝𝐞𝐥 𝐄𝐱𝐚𝐦𝐩𝐥𝐞
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Joe wants to know the required rate of return of a stock which he wants to invest into.
So, He has gathered all the information –

Rate of return of a risk-free security – 9%
Expected rate of return of the broad market – 14%
Beta of the particular stock – 0.90

By using the CAPM Formula, Joe needs to find out the rate of return of that particular stock.

Here we have all the information. So we just need to do is to put the information into the CAPM formula.

Ra = Rrf + Ba (Rm Rrf)

Ra = 0.09 + 0.9 (0.14 – 0.09)

or

Ra = 0.09 + 0.9 * 0.05

or

Ra = 0.09 + 0.0045

Ra = 14 %

So from the above calculation, Joe finds out that the required rate of return of particular stock is 14%.

To know more about 𝐂𝐚𝐩𝐢𝐭𝐚𝐥 𝐀𝐬𝐬𝐞𝐭 𝐏𝐫𝐢𝐜𝐢𝐧𝐠 𝐌𝐨𝐝𝐞𝐥 (CAPM), you can go to this 𝐥𝐢𝐧𝐤 𝐡𝐞𝐫𝐞: https://www.wallstreetmojo.com/capita...

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