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PRICING MODEL
CAPM
A model that describes the relationship between risk and expected return and
The model was introduced by Jack Treynor, William Sharpe, John Lintner
and Jan Mossin independently, building on the earlier work of Harry Markowitz on
The general idea behind CAPM is that investors need to be compensated in two
Can lend and borrow unlimited amounts under the risk free rate of interest
The market is perfect: there are no taxes; there are no transaction costs;
that calculates the expected return of an asset based on its beta and
VALUE OF BETA
β= 1
β <1
β>1