THE CAPITAL ASSET PRICING MODEL HELPS YOU MEASURE EXPECTED RETURNS ON STOCKS
Now that you are nearing the end of this tutorial,
you should understand the basics of the Capital Asset Pricing
Model. Most importantly, you now should have the ability to
identify the components of the CAPM and be able to calculate
expected returns on individual stocks using the CAPM.
The CAPM is a very complicated yet essential concept
in modern finance. The theory is built upon many assumptions, many
of which have come under attack over the years. Yet, the CAPM still
stands tall and is widely used today. The CAPM remains popular due
to its logical approach to measuring expected returns on risky
investments based upon systematic risk.
For more information on investment risk and
return, see other tutorials on beta, risk premium, and investment
risk. Click here to learn even more about this topic with the Encyclopedia of Personal Finance™