Example of CAPM
Let’s imagine you want to invest some of the funds you have in equities that are now priced at ₹153 but offer 6% annual returns. If we assume that this particular firm has a beta factor of one, we can calculate the expected dividend earnings by factoring in the risk-free premium of 2.5 percent and the investor’s estimate of an annual market gain of 8%. After inputting all of the required facts into the equation, one could come to the following conclusion,
[Tex]R_i=R_f+\beta_i(R_m-R_f)[/Tex]
[Tex]R_i=6%+1(8%-2.5%)[/Tex]
Ri = 11.5%
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