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EFB210 Finance 1 > CAPM > Flashcards

Flashcards in CAPM Deck (3)
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1
Q

What is CAPM?

A

Capital Asset Pricing Model

2
Q

What does CAPM do?

A

Shows that both efficient and inefficient assets can be priced (measuring expected return for risk), using the E[Ri]=Rf+Betai(E[Rm]-Rf)
Where:
Rf is the risk-free rate
E[Rm] is the expected return on the market portfolio
E[Rm]-Rf is the market risk premium
Betai is the beta of the asset, Betai=COV(Ri,Rm)/VAR(Rm)

3
Q

What does beta measure?

A

It measures the asset’s exposure to the market