Remove Definition Remove Risk-free Rate Remove Systematic Risk
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What is the Capital Asset Pricing Model (CAPM)?

Andrew Stolz

Definition of Capital Asset Pricing Model. It helps an investor understand what to expect to earn in relation to the risk-free rate and the market return. CAPM assumes that the minimum a rational investor would earn is the risk-free rate by buying the risk-free asset. E(r) = Rf + ??(Rm

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What Is Cost of Equity?

Andrew Stolz

Definition of the Cost of Equity. To compensate for the risks that shareholders take, firms pay them in return. In other words, the cost of equity is the rate of returns a firm pays to its shareholders. Risk-free rate . The systematic risk of the security (Beta). The growth rate of dividends .

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