What is the 'Capital Asset Pricing Model  CAPM'
The capital asset pricing model (CAPM) is a model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.
The general idea behind CAPM is that investors need to be compensated in two ways: time value of money and risk. The time value of money is represented by the riskfree (rf) rate in the formula and compensates the investors for placing money in any investment over a period of time. The other half of the formula represents risk and calculates the amount of compensation the investor needs for taking on additional risk. This is calculated by taking a risk measure (beta) that compares the returns of the asset to the market over a period of time and to the market premium (Rmrf).
BREAKING DOWN 'Capital Asset Pricing Model  CAPM'
The CAPM says that the expected return of a security or a portfolio equals the rate on a riskfree security plus a risk premium. If this expected return does not meet or beat the required return, then the investment should not be undertaken. The security market line plots the results of the CAPM for all different risks (betas).
Using the CAPM model and the following assumptions, we can compute the expected return of a stock in this CAPM example: if the riskfree rate is 3%, the beta (risk measure) of the stock is 2 and the expected market return over the period is 10%, the stock is expected to return 17% (3%+2(10%3%)).
Wants to know more about CAPM? Read Taking Shots at CAPM and The Capital Asset Pricing Model: An Overview

International Capital Asset Pricing ...
A financial model that extends the concept of the capital asset ... 
Roll's Critique
An economic idea that suggests that it is impossible to create ... 
Fama And French Three Factor Model
A factor model that expands on the capital asset pricing model ... 
Consumption Capital Asset Pricing ...
A financial model that extends the concepts of the capital asset ... 
Anomaly
A term describing the incidence when the actual result under ... 
William F. Sharpe
An American economist who won the 1990 Nobel Prize in Economics, ...

Fundamental Analysis
Capital Asset Pricing Model  CAPM
CAPM is a model that describes the relationship between risk and expected return. 
Options & Futures
Financial Concepts: Capital Asset Pricing Model (CAPM)
Pronounced as though it were spelled "capm", this model was originally developed in 1952 by Harry Markowitz and finetuned over a decade later by others, including William Sharpe. The capital ... 
Fundamental Analysis
The Capital Asset Pricing Model: An Overview
CAPM helps you determine what return you deserve for putting your money at risk. 
Investing
The Capital Asset Pricing (CAPM) Model: Pros and Cons
CAPM, while criticized for its unrealistic assumptions, provides a more useful outcome than either the DDM or WACC in many situations. 
Fundamental Analysis
Taking Shots At CAPM
Find out why many investors think the capital asset pricing model is full of holes. 
Investing Basics
Valuation Models: Appleâ€™s Stock Analysis With CAPM
The capital asset pricing model, or the CAPM, estimates the expected return of an asset based on the systematic risk of the assetâ€™s return. 
Professionals
Expected And Unexpected Returns
Find out how to apply this to your portfolio. 
Professionals
The Capital Asset Pricing Model (CAPM)
CFA Level 1  The Capital Asset Pricing Model (CAPM). Learn the theory and formulas behind the capital asset pricing model. Shows how security valuation relates to CAPM and the characteristic ... 
Fundamental Analysis
Is Apple's Stock Over Valued Or Undervalued?
Despite several drawbacks, the CAPM gives an overview of the level of return that investors should expect for bearing only systematic risk. Applying Apple, we get annual expected return of about ... 
Investing Basics
Introduction To International CAPM
ICAPM is one of several models used to determine the required return on an asset, discover its limitations and how to use it.

What is the formula for calculating the capital asset pricing model (CAPM)?
Learn about the capital asset pricing model, or CAPM, and how this formula is used to determine the expected rate of return ... Read Answer >> 
According to the CAPM, the expected return on a stock, that is part of a portfolio, ...
A. the covariance between the stock and the market. B. the variance of the market. C. the market risk premium. D. ... Read Answer >> 
How do I use the CAPM (capital asset pricing model) to determine the cost of equity?
Learn about the elements of the capital asset pricing model, and discover how to use this formula to calculate a business' ... Read Answer >> 
How is the Capital Asset Pricing Model (CAPM) represented in the Security Market ...
Learn about the capital asset pricing model and the security market line and how the model is used in the calculation and ... Read Answer >> 
How do I calculate the cost of equity using Excel?
Learn how to calculate the cost of equity in Microsoft Excel using the capital asset pricing model, or CAPM, including brief ... Read Answer >> 
How accurate is the equity risk premium in evaluating a stock?
Learn about the drawbacks of using the equity risk premium to evaluate a stock, and understand how it is calculated using ... Read Answer >>