![]() ![]() ![]() Help the investor to calculate the expected rate of return based on the capital asset pricing model. The investor wants to evaluate whether the stock generated adequate return given its risk level. The stocks purchased have a beta of 1.2 when compared to the market, i.e. The relevant 10-year treasury bills are trading at 4.5% per annum. During that period, the overall market has grown by 8%, while the stock purchased by him has generated a return of 9%. Let us take another example where the investor had purchased in some stocks one year back. Capital Asset Pricing Model Formula – Example #2 An estimation of the CAPM and the Security Market Line (purple) for the Dow Jones Industrial Average over 3 years for monthly data. The capital asset pricing model - or CAPM - is a financial model that calculates the expected rate of return for an asset or investment. Expected Rate of Return = 4% + 1.5 * (7% – 4%)īased on the capital asset pricing model, Phil should expect a rate of return of 8.5% from the stocks.Calculate Phil’s expected rate of return based on the capital asset pricing model.Įxpected Rate of Return is calculated using the CAPM Formula given below The stocks purchased by him have a beta of 1.5 when compared to the market. Now, he came to realize that the market is currently expected to generate a return of 7% during the next year, while the 10-year treasury bills are trading at 4% per annum. Let us take the example of Phil who has recently purchased stocks worth $5,000. You can download this Capital Asset Pricing Model Formula Excel Template here – Capital Asset Pricing Model Formula Excel Template Capital Asset Pricing Model Formula – Example #1 ![]()
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