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Capital Asset Pricing Model

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Capital Asset Pricing Model

Mathematical pricing model used in portfolio theory – a defensive strategy that attempts to evaluate and minimize investment risk – that examines the relationship between risk and expected return. The return on an investment is its risk premium added to its risk-free rate (the rate of return on an investment with no risk such as a treasury bill). The risk premium is the difference between the market rate of return and the risk-free rate, multiplied by the beta of the share.
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