Definition of Capital Asset Pricing Model

This is a model that elaborates the graphical representation between the investment you made on highly risky securities and the return which you will gain from that investment. This model is usually used in finance to measure the expected rate of return on the assets considering the risk on those assets and capital investment made.

Underneath is an outline of the CAPM concept.

Formula of CAMP:

The beta in the below formula measures how much riskier the investment is. The stock will be risker for investment if the beta value comes out to be greater than 1. The stock is risker from an investment point of view if the value of the beta coefficient is higher than 1. The formula predicts low risk on the investment on any portfolio if the beta value came under 1.