Capital Asset Pricing Model
The primary role of capital market is allocation of ownership of the economy’s capital stock . Capital market theory extends portfolio theory and develops a model for pricing all risky assets. Capital asset pricing model (CAPM) allows determining the required rate of return for any risky asset. CAPM offers powerful and intuitive pleasing predictions about how to measure risk and the relation between expected return and risk. It is widely used in application such as estimating the cost of capital for firms and evaluating the performance of managed portfolio . CAPM has been the basis for calculating the required rate of ...