Capital Asset Pricing Model (CAPM)
The capital asset pricing model estimates the return investors require from an asset based on the risk-free rate, the market risk premium and the asset's sensitivity to the market (beta).
What is Capital Asset Pricing Model (CAPM)?
CAPM is the standard way regulators estimate the cost of equity. The formula is: expected return = risk-free rate + beta × (expected market return − risk-free rate).