THE CAPITAL ASSET PRICING MODEL (CAPM)

Back in the 1960s, a couple of Ivy League professors developed a theory for pricing stocks and other capital assets that has shaped current investment theory. They subsequently won a Nobel Prize in economics for their work. The Capital Asset Pricing Model (CAPM) has indeed been one of the most important investment concepts of the last half-century. The most profound effect of the CAPM is that it has given us a straightforward way to determine expected returns on risky investments.

In this tutorial you will learn about the following subjects related to the CAPM:

What Is the Capital Asset Pricing Model? Elements of the Capital Asset Pricing Model Calculating Expected Returns Using the Capital Asset Pricing Model The Capital Asset Pricing Model Helps You Measure Expected Returns on Stocks

Let's start by looking at some of the basics of the CAPM.