What are the essential elements of CAPM?



What are the essential elements of CAPM?..

Answer / Gupesh Kumar

CAPM (Capital Asset Pricing Model) is a financial model that describes the relationship between risk and expected return for an investment in a stock or a portfolio. The essential elements of CAPM are: 1) Risk-free rate, which represents the return on a hypothetical zero-risk investment such as a US Treasury bond. 2) Beta, which measures the volatility of a particular asset relative to the market as a whole. 3) Market risk premium, which is the expected return of the market portfolio minus the risk-free rate.

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