{"id":1173,"date":"2012-01-13T11:44:20","date_gmt":"2012-01-13T04:44:20","guid":{"rendered":"https:\/\/mbabullshit.com\/blog\/?p=1173"},"modified":"2013-02-28T17:29:21","modified_gmt":"2013-02-28T10:29:21","slug":"capm-capital-asset-pricing-model-2","status":"publish","type":"post","link":"https:\/\/mbabull.com\/blog\/2012\/01\/13\/capm-capital-asset-pricing-model-2\/","title":{"rendered":"CAPM Capital Asset Pricing Model is Easy!"},"content":{"rendered":"<p><iframe loading=\"lazy\" src=\"http:\/\/www.youtube.com\/embed\/videoseries?list=PL3700D9F3A7B22AEF&amp;hl=en_US\" height=\"315\" width=\"560\" allowfullscreen=\"\" frameborder=\"0\"><\/iframe><\/p>\n<h3>Download our FREE Cheat-Sheet on <a title=\"CAPM Cheat Sheet\" href=\"https:\/\/mbabullshit.com\/blog\/wp-content\/uploads\/2013\/02\/CAPM-Capital-Capital-Asset-Pricing-Model1.pdf\">CAPM<\/a> <a title=\"CAPM Cheet Sheet\" href=\"https:\/\/mbabullshit.com\/blog\/wp-content\/uploads\/2013\/02\/CAPM-Capital-Capital-Asset-Pricing-Model1.pdf\">click\u00a0here<\/a>:<\/h3>\n<p><a href=\"https:\/\/mbabullshit.com\/blog\/wp-content\/uploads\/2013\/02\/CAPM-Capital-Capital-Asset-Pricing-Model1.pdf\"><\/p>\n<h3>Download Cheat-Sheet<\/h3>\n<p><\/a><\/p>\n<p>&nbsp;<\/p>\n<p><img decoding=\"async\" alt=\"CAPM Capital Asset Pricing Model\" src=\"https:\/\/mbabullshit.com\/blog\/wp-content\/uploads\/2013\/02\/CAPM-e1362045923707.jpg\" \/><\/p>\n<p>&nbsp;<\/p>\n<ul>\n<li>CAPM is just a \u201cmodel\u201d or formula used to calculate COST OF EQUITY<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li>Cost of Equity is how much an investor \u201cwants\u201d to earn for investing in a company which is more risky than a safe bank deposit (or government bond), and (usually) more risky than investing in the general stock market with a bunch of stocks.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li>It&#8217;s called a &#8220;cost&#8221; because that&#8217;s how much you should &#8220;fairly&#8221; pay your investors for investing in your risky company.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li>In more complicated problems, you include the cost of equity as part of your <a href=\"https:\/\/mbabullshit.com\/blog\/2011\/08\/06\/wacc-weighted-average-cost-of-capital-how-to-calculate-wacc\/\">WACC<\/a> or <a href=\"https:\/\/mbabullshit.com\/blog\/2011\/08\/06\/wacc-weighted-average-cost-of-capital-how-to-calculate-wacc\/\">Weighted Average Cost of Capital<\/a><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li>Assumes that investing in many stocks is safer than investing in just one company\u2019s stock: \u201cdon\u2019t put all your eggs in one basket\u201d sorta thing.. this is called \u201cdiversified\u201d risk<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<ul>\n<li>Rationale: An investor would \u201cwant\u201d (or \u201cexpect\u201d) more income (\u201creturn\u201d) for investing in a highly risky company instead of the zero-risk \u00a0bank\/bond, and also instead of investing in a \u201cmedium-risk\u201d general stock market.\u00a0 Therefore, cost of equity = \u201cexpected return\u201d<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>You calculate Cost of Equity using the CAPM or Capital Asset Pricing Model Formula:<\/p>\n<p align=\"center\"><span style=\"font-size: medium;\">K<sub>e<\/sub> = R<sub>f<\/sub> + B (R<sub>m<\/sub>-R<sub>f<\/sub>)<\/span><\/p>\n<p>DON\u2019T panic! It\u2019s MUCH\u00a0 EASIER than it looks! See this formula step-by-step in action, watch it for free in the video above.<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Download our FREE Cheat-Sheet on CAPM click\u00a0here: Download Cheat-Sheet &nbsp; &nbsp; CAPM is just a \u201cmodel\u201d or formula used to calculate COST OF EQUITY &nbsp; Cost of Equity is how much an investor \u201cwants\u201d to earn for investing in a company which is more risky than a safe bank deposit (or government bond), and (usually) [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[69,68,74,73,72,70,71],"class_list":["post-1173","post","type-post","status-publish","format-standard","hentry","category-free-video-tutorials","tag-capital-asset-pricing-model","tag-capm","tag-capm-model","tag-cost-of-capital","tag-cost-of-equity","tag-the-capm","tag-what-is-capm"],"_links":{"self":[{"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/posts\/1173","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/comments?post=1173"}],"version-history":[{"count":6,"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/posts\/1173\/revisions"}],"predecessor-version":[{"id":1283,"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/posts\/1173\/revisions\/1283"}],"wp:attachment":[{"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/media?parent=1173"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/categories?post=1173"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mbabull.com\/blog\/wp-json\/wp\/v2\/tags?post=1173"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}