Finance & Fury Podcast

Welcome to Finance and Fury. How useful is investment theory when it comes to practically investing and calculating an expected return? Lot of theory when it comes to investing – efficient frontiers, EMH – working out expected returns In this episode – we will look at One aspect – CAPM – and look at Beta – see how well this can be used when selecting investing - What Is the Capital Asset Pricing Model? The Capital Asset Pricing Model (CAPM) describes the relationship between the risk (volatility) of the market and expected returnfor an investment – used in the share market mainly – Foundation for theory that is used throughout finance for pricing securitiesthat have risk – volatility –   The formula - calculating the expected return is as follows: Expected return = RF + BETA X Risk Premium Risk free rate of return - Investors expect to be compensated for risk and the time value of money. The risk-free rate in the CAPM formula accounts for the time value of money. 10-year bond is normally the risk-free ra