1. The Capital Asset Pricing Model (CAPM) is a model used to compute the required rate of return of a specific investment. This required rate of return is also referred to as the cost of capital. The CAPM allows to compute a risk-adjusted rate of return, meaning that it takes into account the standard deviation of a stock price into the calculation, consistent with the fact that taking more risk should yield higher returns. The determinants of the required return are the market required rate of return, the risk-free rate and the beta (which measures the correlation of the Continue reading...