50 CAPM

This video introduces the Capital Asset Pricing Model (CAPM), explaining how investors are compensated for bearing market risks. We'll explore the intuitive explanation behind the CAPM equation, which links an asset's expected return to its market risk exposure. The model quantifies this relationship using the risk-free rate, an asset's beta, and the market risk premium. This video also outlines the six key assumptions underpinning the CAPM, from borrowing and lending at a risk-free rate to investors being rational mean-variance optimizers with shared beliefs. Finally, we demonstrate how to apply the CAPM formula to calculate an asset's expected return using sample data. Visit AxiomTutoring.com and subscribe to @AxiomTutoringCourses.