The Capital Asset Pricing Model (CAPM) is a financial tool used to estimate the expected return on an investment based on its systematic risk, commonly measured as beta, and the overall market's expected return. It assumes that investors require a risk-free rate of return, plus an additional return based on the investment's beta and the market risk premium.
CAPM provides insights into the relationship between risk and expected return and is frequently used in portfolio management and investment decision-making.
In this video, we delve into the Capital Asset Pricing Model (CAPM) and how it helps in estimating the cost of equity. CAPM is a vital tool in finance, used to determine the expected return on investment by considering risk and the time value of money. This comprehensive guide covers the CAPM formula, its application in capital markets, and its importance in funding startups. We also explain how to use CAPM in finance and its role in capital market financing. Perfect for those seeking business tips and financial education, this video is both informative and practical.
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Chapters:
0:00 Intro
0:10 What is Capital Asset Pricing Model?
0:23 Understanding the CAPM
0:37 Risk-Free Rate
0:49 Beta Coefficient
1:05 Market Risk Premium
1:13 Practical Application
1:29 Importance of Cost of Equity
2:20 Conclusion
2:35 Outro
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