CAPM Model & Its uses in the Financial Market

Nowadays, there are number of traders who have shifted from the stock market to the Crypto Currency market; and most of them are looking for the exact calculation of the cost of equity. For such people the accurate tool that is easily available is also positively known as Capital Asset Pricing Model. According to the Capital Asset pricing model, the rate of return on equity will be given by the following relationship:

Cost of equity = the risk free rate + the Beta of the firms share (the market risk premium)

To estimate the 3 parameters firm, cost of equity requires the following equations:

  1. The risk free rate
  2. The market risk premium
  3. The Beta of the firms share

The Risk Free Rate – Whatever yield the Government Treasury Securities offer are primarily used at the risk free rate. One can … Read the rest