Verbull Word of the day
Finance glossary

CAPM

Risk · advanced
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.

Play today's puzzle →
Verbull app icon
Get a word like this every morning
Word of the Day on your Home Screen, with quizzes and flashcards. Get the app →