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What is the Capital Asset Pricing Model

What is the Capital Asset Pricing Model?

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The Capital Asset Pricing Model (CAPM) associates the returns on individual assets or complete portfolios to the return on the market as an entire. This introduces the concepts of systematic risk and specific risk. This specific risk is unique to an individual asset; systematic risk is which associated with the market. In Capital Asset Pricing Model investors are compensated for taking systematic risk except not for taking specific risk. This is since specific risk can be diversi?ed away with holding various assets.

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