Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
The stock of Verdoni, Inc., has a beta of 1.28. The risk-free
The expected return is the return expected by the investors on their investment. It is the anticipated profit or loss by the investor on an investment. It is the probability of the possible return that an investment can generate.
The expected return can be calculated using the Capital Asset Pricing Model formula as follows:
Where,
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