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Capital Asset Pricing Model At a Glance

Capital Asset Pricing Model

When an individual wishes to build his/her estate, he/she may choose to invest in stocks as a means of earning a profit off of a specified monetary fund. In the event that an individual decides to invest in the stock market, he/she should becomes familiar with the capital asset pricing model.

This model is a mathematical equation that allows an individual to determine the existent relationship between the risk of investing in a certain stock, and the return that is expected from investing in that stock. By adding the risk premium and the rate provided on a risk free security, an individual can better understand the expected return on a risky investment. Though this model can be difficult to understand, it can also be extremely advantageous, as successful capital asset management will help build an estate.

Without effective capital asset management, an individual may invest in risky stocks and lose a significant amount of money. This will significantly diminish the size of his/her estate. This can be devastating not only due to the effects that it has on an individual's savings and financial status, but also to the inheritance that will be acquired by loved ones following his/her death. Everyone wants to ensure that the people that they love are cared for when they are no longer here to provide for them.

As a result, many people will actively seek ways to increase the size of their estate and capital assets. This will help to guarantee that loved ones have access to necessary financial funds. However, it is vital that individuals be cautious when investing in stocks, research thoroughly, and take all feasible steps to guarantee a return on their investment.

NEXT: Current Assets At a Glance

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