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User: The capital asset pricing model (CAPM) is a model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

2018-12-12T22:38:15Z

The capital asset pricing model (CAPM) is a model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

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The capital asset pricing model (CAPM) is a model that describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for the pricing of risky securities, generating expected returns for assets given the risk of those assets and calculating costs of capital.<ref>What is the 'Capital Asset Pricing Model - CAPM [http://www.investopedia.com/terms/c/capm.asp Invetopedia]</ref>The CAPM was developed in the early 1960s by William Sharpe (1964), Jack Treynor (1962), John Lintner (1965a, b) and Jan Mossin (1966).

'''CAPM Formula'''<ref>Capital Asset Pricing Model - CAPM Formula [http://www.financeformulas.net/Capital-Asset-Pricing-Model.html Finance Formulas]</ref><br />

[[File:CAPM 1.gif|300px|CAPM Formula]]<br />

'''Assumptions of CAPM'''<ref>Capital Asset Pricing Model - CAPM Assumptions [https://en.wikipedia.org/wiki/Capital_asset_pricing_model Wikipedia]</ref><br />
All investors:
*Aim to maximize economic utilities (Asset quantities are given and fixed).
*Are rational and risk-averse.
*Are broadly diversified across a range of investments.
*Are price takers, i.e., they cannot influence prices.
*Can lend and borrow unlimited amounts under the risk free rate of interest.
*Trade without transaction or taxation costs.
*Deal with securities that are all highly divisible into small parcels (All assets are perfectly divisible and liquid).
*Have homogeneous expectations.
*Assume all information is available at the same time to all investors.

===References===
<references />

===Further Reading===
*Revisiting The Capital Asset Pricing Model [https://web.stanford.edu/~wfsharpe/art/djam/djam.htm Stanford]
*Capital Asset Pricing Model (CAPM): Definition, Formula, Advantages & Example [http://study.com/academy/lesson/capital-asset-pricing-model-capm-definition-formula-advantages-example.html Study.com]

@@ Line 1: / Line 1: @@
-The capital asset pricing model (CAPM) is a model that describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for the pricing of risky securities, generating expected returns for assets given the risk of those assets and calculating costs of capital.<ref>What is the 'Capital Asset Pricing Model - CAPM [http://www.investopedia.com/terms/c/capm.asp Invetopedia]</ref>The CAPM was developed in the early 1960s by William Sharpe (1964), Jack Treynor (1962), John Lintner (1965a, b) and Jan Mossin (1966).
+The [[capital]] [[asset]] [[pricing]] [[model]] (CAPM) is a model that describes the relationship between systematic [[risk]] and expected return for assets, particularly stocks. CAPM is widely used throughout finance for the pricing of risky securities, generating expected returns for assets given the risk of those assets and calculating costs of capital.<ref>What is the 'Capital Asset [[Pricing Model]] - CAPM [http://www.investopedia.com/terms/c/capm.asp Invetopedia]</ref>The CAPM was developed in the early 1960s by William Sharpe (1964), Jack Treynor (1962), John Lintner (1965a, b) and Jan Mossin (1966).
@@ Line 13: / Line 13: @@
 *Are rational and risk-averse.
 *Are broadly diversified across a range of investments.
-*Are price takers, i.e., they cannot influence prices.
+*Are [[price]] takers, i.e., they cannot influence prices.
 *Can lend and borrow unlimited amounts under the risk free rate of interest.
 *Trade without transaction or taxation costs.

Capital Asset Pricing Model (CAPM) - Revision history

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User: The capital asset pricing model (CAPM) is a model that describes the relationship between systematic risk and expected return for assets, particularly stocks.