Definitions for

**"Capital asset pricing model"****Related Terms:**Capm, Equity risk premium, Risk-free asset, Expected return, Investment risk, Security market line, Risk premium, Raroc, Risk-adjusted return, Excess return, Systematic risk, Risk adjusted return on capital, Absolute return, Alpha, Capital market line, Efficient frontier, Tactical asset allocation, Total return, Growth assets, Roic, Specific risk, Rate of return, Return on invested capital, Performance, Navps, Roa, Rona, Nav, Average rate of return, Market portfolio, Alpha coefficient, Weighted average cost of capital, Inflation risk, Risk adjusted return, Return, Underperform, Roe, Net asset value, Return on total assets, Roi, Time-weighted rate of return, Net asset value per share, Cash-on-cash return, Value at risk, Net assets, Beta coefficient, Capital appreciation, Nta, Modern portfolio theory, Total rate of return

Linear fit measuring the relative performance of a portfolio in comparison with a market index average.

( CAPM) An equation relating an asset's relative riskiness (beta) to its required return.

This model relates the required rate of return for any security with the risk for that security as measured by beta.

A model used for valuing portfolios based upon market risk.

A theory which predicts that the expected risk premium for an individual stock will be proportional to its beta, such that the expected risk premium on a stock 5 beta 3 the expected risk premium in the market. Risk premium is defined as the expected incremental return for making a risky investment rather than a safe one.

A method of valuing securities or investments: a discounted cash flow (DCF) using on a risk adjusted discount rate.... more on: Capital asset pricing model

The equation for the security market line showing that the expected return on an asset is related to its systematic risk.

a method of estimating the cost of equity capital of a company. The cost of equity capital is equal to the return of a risk-free investment plus a premium that reflects the risk of the company's equity.

A widely used model that establishes how risky securities ought to be priced in financial markets. It distinguishes between systematic risk and unsystematic risk, and postulates that a security's expected returns ought to increase linearly with systematic risk. The line that expresses this relationship is called the security-market line, and systematic risk is measured by a security's beta coefficient.

An economic model for valuing stocks by relating risk and expected return. Based on the idea that investors demand additional expected return (called the risk premium) if asked to accept additional risk. see also Jensen index

Set of predictions concerning equilibrium expected returns on risky assets. For a complete description of the Capital Asset Pricing Model as well as terms, alpha and beta, refer "Investments", Z. Bodie, A. Kane, A. J. Marcus, 2nd Edition, 1993.

A model for describing the way prices of individual assets are determined in an efficient market, based on their relative riskiness in comparison with the return on risk-free assets. According to this model, prices are determined in such a way that risk premiums are proportional to systematic risk as measured by the beta coefficient. As such, the CAPM provides an explicit expression of the expected returns for all assets. Basically, the CAPM holds that if investors are risk averse, high- risk stocks must have higher expected returns than low- risk stocks.

CAPM is a valuation technique that uses the weighted average cost of capital (WACC) to discount future estimated cash flows of the company.

A model in which the cost of capital for any stock or portfolio of stocks equals a risk-free rate plus a risk premium in proportion to the systematic risk of the stock or portfolio.

A model that relates the return from an investment to the risk free rate, market return and risk (beta). The formula is: Rp = Rf + (Rm - Rf) bp Where Rp is the return from the portfolio Rf is the risk free rate Rm is the return from the market bp is the beta of the portfolio

Capital Asset Pricing Model determines the cost of equity of a quoted company. This cost depends on the risk free interest rate, the return of a market venturelist and the securityâ€(tm)s volatility, compared to the overall market.

a model in which the cost of capital for any security or portfolio of securities equals a risk-free rate plus a risk premium that is proportionate to the systematic risk of the security or portfolio.

an equilibrium based asset pricing model developed independently by Sharpe, Lintner and Mossin. The simplest version states that assets are priced according to their relationship to the Market Portfolio of all risky assets determined by the securities beta

The capital asset pricing model, C.A.P.M., is an economic theory discussed in finance discourse. It describes the relationship between risk and expected return, that the expected return on an investment is equal to a risk-free security plus some risk premium. The riskier the investment, the higher the returns should be. Keep note of this as you compete in the Marketocracy competition.

A theoretical comparative risk model that relates risk and return.

An element of modern portfolio theory. A mathematical model showing an “appropriate” price, based on relative risk combined with the return on risk-free assets.

A model that describes the relationship between risk and expected return for securities. The model states that the expected return of a security or portfolio equals the rate on a risk-free security plus a risk premium related to the volatility of the security relative to a representative market portfolio.

A model of the relationship between expected risk and expected return. The theory that investors demand higher returns for higher risks.

Is a tool that relates an asset's expected return to the market's expected return. It combines the concepts of efficient capital markets with risk premiums. The idea of capital market efficiency assumes immediate - instantaneous - response to perfect or near perfect information. The risk premiums relate an investment to the market's risk-free or riskless rate of return. Typically, this risk-free rate is viewed in terms of principal safety for short term U.S. government obligations. Here, beta relates the volatility of an asset to the market.

( CAPM) - A model for valuing financial assets.

A valuation model meant to describe the relationship between risk and return.

Economic theory describing relationship between risk and expected return.

An economic theory that describes the relationship between risk and expected return, and serves as a model for the pricing of risky securities. The CAPM asserts that the only risk that is priced by rational investors is systematic risk, because that risk cannot be eliminated by diversification. The CAPM says that the expected return of a security or a portfolio is equal to the rate on a risk free security plus a risk premium.

Model of the relationship between systematic risk and expected return. It is a widely used basis for valuing financial assets.

A theory that concludes that investors are rewarded for taking systematic risk, but not for taking nonsystematic risk.

A model for valuing financial assets based upon their systematic risk.

A model used to value stocks by examining the relationship between risk and expected return. Assumes that investors expect to be compensated for taking more risk through higher returns.

An economic model for valuing securities Mathematical model that enables investors to determine the expected return from a risky security. The model uses Beta as the main measure of risk

Tool used to measure the price of a capital asset or the opportunity cost of equity. CAPM states that the opportunity cost of equity for a company is equal to the return on risk-free securities plus the company's systematic risk (beta) multiplied by the market price of risk (market risk premium). The formula is: Ke = Rf + B*(RM-Rf).

The Capital Asset Pricing Model (CAPM') is used in finance to determine a theoretically appropriate required rate of return (and thus the price if expected cash flows can be estimated) of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset's non-diversifiable risk. The CAPM formula takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), in a number often referred to as beta (Î²) in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset.

Capital Builder Account (CBA) Capital expenditures