The Capital Asset Pricing Model
The CAPM (capital asset pricing model) has a variety of uses. It provides a theoretical justification for the widespread practice of passive investing by holding index funds. The CAPM can provide estimates of expected rates of return on individual investments and can establish “fair” rates of return on invested capital in regulated firms or in firms working on a cost-plus basis.
KeywordsRisk Premium Risky Asset Excess Return Capital Asset Price Model Weighted Portfolio
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