https://padlet.com/alevargasavv74/qe706bsvf4uh2iy en-us 2023-09-18 14:45:17 UTC 2023-09-18 15:37:41 UTC hello@padlet.com https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2708984683 Introduction:
The capital asset pricing model - or CAPM - is a financial model that calculates the expected rate of return for an asset or investment. CAPM does this by using the expected return on both the market and a risk-free asset, and the asset's correlation or sensitivity to the market (beta)

]]> 2023-09-18 14:49:13 UTC https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2708984683 https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2708987771 The CAPM establishes a relationship between the risk and expected return by an investor using three key variables: Risk-Free Rate (rf) Beta (β) of the Underlying Asset (or Security) Equity Risk Premium (ERP) 

https://www.investopedia.com/terms/c/capm.asp]]> 2023-09-18 14:50:51 UTC https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2708987771 alevargasavv74 https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2708990053 Pricing assets: can be used to calculate the fair market value of an asset, given its expected return and risk.
Portfolio construction: can be used to construct a portfolio of assets that is expected to maximize return for a given level of risk.
Performance evaluation: can be used to evaluate the performance of a portfolio manager.
Cost of capital: The CAPM can be used to calculate the cost of capital for a company.

]]> 2023-09-18 14:52:00 UTC https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2708990053 https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2709000144 Ra = The “Ra” notation above represents the expected return of a capital asset over time, given all of the other variables in the equation.

Rrf = The “Rrf” notation is for the risk-free rate, which is typically equal to the yield on a 10-year US government bond. 

Ba = The beta (denoted as “Ba” in the CAPM formula) is a measure of a stock’s risk (volatility of returns) reflected by measuring the fluctuation of its price changes relative to the overall market.

Rm = Expected return of the market


]]> 2023-09-18 14:57:35 UTC https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2709000144 https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2709000905 (Ke) = rf + β (rm – rf)

Where:
Ke = Cost of Equity or Expected Return
rf = Risk Free Rate
β = Beta (Measurment of the Volatility)
rm = Expected Market Return
(rm – rf) = Equity Risk Premium]]> 2023-09-18 14:57:57 UTC https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2709000905 alevargasavv74 https://padlet.com/alevargasavv74/qe706bsvf4uh2iy/wish/2709002313 Unrealistic assumptions: These assumptions may not hold in the real world, which can make the CAPM less accurate.
Difficulty of estimating inputs: Some of the inputs to the CAPM, such as beta and the risk-free rate, can be difficult to estimate accurately.
Failure to account for all types of risk: The CAPM only accounts for systematic risk, which is the risk that cannot be diversified away.
Limited scope: it should not be used in isolation, and it should be used in conjunction with other tools and techniques when making investment decisions.

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