CAPM: NAVIGATING INVESTMENT RISKS AND RETURNS
The Capital Asset Pricing Model (CAPM) is a financial model that helps investors understand the relationship between risk and return.
CAPM assumes that investors are rational and risk-averse, meaning they prefer less risk for a given level of return.
The model uses beta, a measure of a stock's volatility, to determine the expected return of an investment.
CAPM also takes into account the risk-free rate of return and the expected return of the market as a whole.
Investors can use CAPM to determine whether a stock is overvalued or undervalued based on its expected return.
CAPM is a useful tool for portfolio management, as it can help investors optimize their portfolios by balancing risk and return.
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However, CAPM has its limitations and may not always accurately predict returns, especially in volatile markets.
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