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Beta

Beta It measures the risk (volatility) of individual to till market portfolio. According to the return with the market portfolio’s return, divided by the market portfolio (13 = 0). The co-variance of two assets, he product oil their correlation standard...

Risk-Premium on Market Portfolio

Risk-Premium on Market Portfolio Market risk premium or the risk premium on market portfolio is the difference between the expected return on the market portfolio and the risk-free rate of return. The CAPM holds that in equilibrium, the market portfolio is the...

Risk-Free Rate

Risk-Free Rate The rate of return available on assets like T-bills, money market funds or bank deposits is taken as the proxy for risk-free rate. That is maturity period of T-balls and bank deposits is taken to be less than one year, usually 364 days. Such assets have...

Risk-return Relationship

Risk-return Relationship In the CAPM, the expected return on an asset varies directly with its systematic risk and the risk premium of the market portfolio, In other words, the risk premium for in asset or portfolio is a function of its beta. The risk premium added to...

Security Market Line (SML)

Security Market Line (SML) .We know that risk averse investors seek risk premium to assume the risk embedded in risky assets. The risk is variability in return. The total risk consists of two components: systematic risk and unsystematic risk. In a portfolio of risky...

Elements of the Model

Elements of the Model The capital asset pricing model consists of two elements: the capital market line (CML) and the security market line (SML).The capital market line, as discussed before, represents the efficient frontier formed by combining one-month T-bills with...