Finance glossary
CAPM
Definition
A model linking an asset expected return to its market risk.
The Capital Asset Pricing Model estimates expected return as the risk-free rate plus beta times the equity risk premium. It formalizes the idea that investors are rewarded only for systematic risk. Despite known limitations, it remains a standard tool for the cost of equity.
In a sentence
Using CAPM, she estimated the stock's expected return from its beta and the market's risk premium.
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