Answered: Explain the following terms in the…

Explain the following terms in the Capital Asset Pricing Model (CAPM): 1. Risk-Free Rate 2. Beta 3. Equity Risk Premium 4. Market Rate of Return 5. Market Risk Premium

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter3: Risk And Return: Part Ii

Section: Chapter Questions

Problem 8MC

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Question

Explain the following terms in the Capital Asset Pricing Model (CAPM):

1. Risk-Free Rate

2. Beta

3. Equity Risk Premium

4. Market Rate of Return

5. Market Risk Premium

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

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