Capital Asset Pricing Model (CAPM)

A model for pricing risk. The CAPM assumes that investors must be compensated for the time value of money plus systematic risk, as measured by an asset’s beta. It is an asset pricing model that relates the required return on an asset to its systematic risk. A model that describes the relationship between risk and expected (required) return; in this model, a security's expected (required) return is the risk-free rate plus a premium based on the systematic risk of the security.