CAPM Capital Asset Pricing Model in 3 minutes (YouTube Video Below)

3 Minute Overview (Also Download Free Cheet Sheet at Bottom) and then scroll down for detailed calculations video

Part 1

Part 2

Beta for CAPM Premium Video (Free Preview)
*To watch this in FULL click here

Beta Levered vs. Unlevered Premium Video (Free Preview)
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Arbitrage Pricing Theory vs. CAPM Premium Video (Free Preview)
*To watch this in FULL click here

Arbitrage Pricing Theory and Idiosyncratic Risk Premium Video (Free Preview)
*To watch this in FULL click here

Arbitrage Pricing Theory and Portfolio Diversification Premium Video (Free Preview)
*To watch this in FULL click here

 Download FREE Cheat-Sheet PDF on CAPM click here

 

  • CAPM is just a “model” or formula used to calculate COST OF EQUITY

 

  • Cost of Equity is how much an investor “wants” 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.

 

  • It’s called a “cost” because that’s how much you should “fairly” pay your investors for investing in your risky company.

 

 

  • CAPM assumes that investing in many stocks is safer than investing in just one company’s stock: “don’t put all your eggs in one basket” sorta thing.. this is called “diversified” risk

 

  • Rationale: An investor would “want” (or “expect”) more income (“return”) for investing in a highly risky company instead of the zero-risk  bank/bond, and also instead of investing in a “medium-risk” general stock market.  Therefore, cost of equity = “expected return”

 

You calculate Cost of Equity using the CAPM or Capital Asset Pricing Model Formula:

Ke = Rf + B (Rm-Rf)

DON’T panic! It’s MUCH  EASIER than it looks! See this formula step-by-step in action, watch it for free in the video above.

CAPM Capital Asset Pricing Model

6 thoughts on “CAPM Capital Asset Pricing Model in 3 minutes (YouTube Video Below)

  1. Elizabeth says:

    THANK YOU!!!
    My professor is HORRIBLE and after hours and hours of listening to his lectures on CAPM and WACC I still didn’t get it. Then I found your videos and within one hour I completely understood both concepts! You saved my graduate school career!!!

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