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It helps an investor understand what to expect to earn in relation to the risk-freerate and the market return. CAPM assumes that the minimum a rational investor would earn is the risk-freerate by buying the risk-free asset. What Impacts the Capital Asset Pricing Model? E(r) = Rf + ??(Rm
Market Risk-FreeRate: Beta calculations often involve comparing the asset’s returns to a risk-freerate, such as the yield on a government bond with a similar maturity. For short-term trading strategies, other risk measures and technical indicators may provide more relevant insights.
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