Uploaded by Gift Ichemati


1) capital asset pricing model
Expected Rate of Return = Risk-Free Premium + Beta * (Market Risk
Ra = Rrf + βa * (Rm – Rrf)
Risk-free return:(Rrf) is the value assigned to an investment that
guarantees a return with zero risks.
Market Risk Premium (Rm – Rrf) is the expected return an investor
receives (or expects to receive in the future) from holding a risk-laden
portfolio instead of risk-free assets.
Beta (βa) The Beta is a measure of the volatility of a stock with respect to
the market in general. The fluctuations that will be caused in the stock due
to a change in market conditions
2) The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk
and expected return for assets, particularly stocks