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Capital Asset Pricing Model (CAPM)

A model that describes the relationship between risk and expected return. This is used in the pricing of risky securities. CAPM says that the expected return of a security or a portfolio equals the rate on a risk-free security plus a risk premium. If this expected return does not meet or beat the required return, then the investment should not be undertaken. The security market line plots the results of the CAPM for all different risks.

 

Wikipedia: https://en.wikipedia.org/wiki/Capital_asset_pricing_model 



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