In finance, the capital asset pricing model (CAPM) is used to determine a theoretically appropriate required rate of return of an asset, if that asset is to be added to an already well-diversified portfolio, given that asset’s non-diversifiable risk. The model takes into account the asset’s sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity beta in the financial industry, as well as the expected return of the market and the expected return of a theoretical risk-free asset.
Link to This DefinitionDid you find this definition of CAPITAL ASSET PRICING MODEL (CAPM) helpful? You can share it by copying the code below and adding it to your blog or web page.
Written and fact checked by The Law Dictionary