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just need help with a reply to this post. thank you in advance!
This week chapter talks about how to calculate risk using the capital asset pricing model (CAPM) so I found an article that elaborates on the subject. The article states that CAPM was created by an economist by the name of William Sharpe with the theory that individual investments contains two types of risks which are systematic risks (i.e wars, interest rates, recessions) and unsystematic risks (risks to individual stocks),. Sharpe figured out that the return on a individual stock or a portfolio of stocks should equal its cost of capital. The CAPM formula is the risk-free plus the beta of security multiplied by the equity market premium. This article and our book both states that the CAPM is not a perfect model but does provide a good measurement for investors
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