FMP
Nov 10, 2023 8:24 AM - Parth Sanghvi
The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between the expected return and risk of an investment. It is one of the most widely used models in finance and is often used by investors and financial analysts to make investment decisions.
The CAPM formula is as follows:
Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
Image:
The CAPM formula can be used to calculate the expected return of an asset, given its risk-free rate, beta, and market return. For example, if an investor is considering investing in a stock with a beta of 1.2 and the market return is expected to be 10%, the CAPM formula would predict that the stock's expected return is 12%.
The CAPM is a powerful tool for estimating the expected return of an asset, but it is important to note that it is a simplified model and has a number of limitations. For example, the CAPM assumes that investors are rational and have access to perfect information. Additionally, the CAPM does not account for all of the factors that can affect the return of an asset, such as macroeconomic conditions and company-specific risks.
Despite its limitations, the CAPM remains one of the most widely used models in finance. It is a useful tool for investors and financial analysts to understand the relationship between risk and return and to make informed investment decisions.
The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between the expected return and risk of an investment. It is a widely used model in finance and can be used to calculate the expected return of an asset, given its risk-free rate, beta, and market return. While the CAPM has some limitations, it remains a valuable tool for investors and financial analysts to make informed investment decisions.
Sep 11, 2023 1:38 PM - Rajnish Katharotiya
Price to Earnings is one of the key metrics use to value companies using multiples. The P/E ratio and other multiples are relative valuation metrics and they cannot be looked at in isolation. One of the problems with the P/E metric is the fact that if we are in the peak of a business cycle, earni...
Sep 11, 2023 1:49 PM - Rajnish Katharotiya
Price-to-Earnings ratio is a relative valuation tool. It is used by investors to find great companies at low prices. In this post, we will build a Python script to calculate Price Earnings Ratio for comparable companies. Photo by Skitterphoto on Pexels Price Earnings Ratio and Comparable Compa...
Oct 17, 2023 3:09 PM - Davit Kirakosyan
Shares of VMware (NYSE:VMW) witnessed a sharp drop of 12% intra-day today due to rising concerns about China's review of the company's significant sale deal to Broadcom. Consequently, Broadcom's shares also saw a dip of around 4%. Even though there aren’t any apparent problems with the proposed solu...