Define: Capital Asset Pricing Model

UK Accounting Glossary

Definition: Capital Asset Pricing Model



Advertisement



Full Definition of Capital Asset Pricing Model


Capital Asset Pricing Model (CAPM) is a sophisticated mathematical method of formulating a relationship between expected risk and expected return. In essence, Capital Asset Pricing Model is built on a pervasive investment theory, in which Capital Asset Pricing Model claims that higher risk justifies higher returns. Building upon that assertion, Capital Asset Pricing Model states that the return on an asset or security is equal to a risk-free return, plus a risk premium. Thus, according to the Capital Asset Pricing Model, the projected return must be on par with or above the required return to rationalize the investment. End calculation of the Capital Asset Pricing Model is conveyed graphically by the security market line (SML). Capital Asset Pricing Model is a fairly complicated device used primarily by trained financial practitioners to calculate the pricing of high-risk securities.


Advertisement




Cite Term


To help you cite our definitions in your bibliography, here is the proper citation layout for the three major formatting styles, with all of the relevant information filled in.

Page URL
https://payrollheaven.com/define/capital-asset-pricing-model/
Modern Language Association (MLA):
Capital Asset Pricing Model. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. February 20, 2020 https://payrollheaven.com/define/capital-asset-pricing-model/.
Chicago Manual of Style (CMS):
Capital Asset Pricing Model. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/capital-asset-pricing-model/ (accessed: February 20, 2020).
American Psychological Association (APA):
Capital Asset Pricing Model. PayrollHeaven.com. Retrieved February 20, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/capital-asset-pricing-model/

Definition Sources


Definitions for Capital Asset Pricing Model are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • BusinessDictionary.com
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 4th February 2020.