kapitalverdimodellen

The Capital Asset Pricing Model, or CAPM, is a financial model used to determine the theoretically appropriate required rate of return of an asset. It is widely used in finance to price risky securities and to generate expected returns on assets given their risk. The model is based on the idea that investors expect to be compensated for two things: the time value of money and the risk they take on. The time value of money is represented by the risk-free rate, which is the return on an investment with zero risk, such as a U.S. Treasury bond. The risk premium is the additional return investors expect for taking on additional risk.

The CAPM formula is expressed as: Expected Return = Risk-Free Rate + Beta * (Expected Market Return - Risk-Free Rate). Beta is a measure of an asset's volatility in relation to the overall market. A beta of 1 means the asset's price tends to move with the market. A beta greater than 1 suggests the asset is more volatile than the market, while a beta less than 1 indicates it is less volatile. The term (Expected Market Return - Risk-Free Rate) is known as the market risk premium, representing the excess return investors expect from investing in the market over the risk-free rate.

While the CAPM is a cornerstone of modern portfolio theory, it relies on several assumptions that may not hold true in the real world. These include assumptions about rational investors, perfect markets, and the ability to borrow and lend at the risk-free rate. Despite its limitations, the CAPM remains a valuable tool for understanding the relationship between risk and expected return in financial markets.