CAPM (Capital Asset Pricing Model) E(Rp)= Rf+β((RM)-Rf]], how is RM calculated? Is it calculated according to the market index?

RM is the rate of return of the capital market and the average annual growth rate of the stock index. It is calculated by the market index.

The capital asset pricing model, portfolio theory and capital market theory have all developed, mainly studying the relationship between the expected rate of return of assets and risky assets in the securities market and what the equilibrium price is. Expected market quotation.

Model for determining the stock market price of capital (stock) deposit assets Example: Assuming that investors invest in the whole stock market through capital and bear any diversification risks arising from economic and stock market changes, investors expect to report diversification risks higher than the risk interest rate.

(1) market portfolio's risk represents the average risk, and market portfolio's beta coefficient = 1, so the average risk stock return = RF+ 1× (RM-RF) = RM.

(2) Other common names of RF are: risk-free rate of return, treasury bill rate, risk-free interest rate, etc.

(3) Other common names of RM are: market average return, market portfolio average return, market portfolio average return, market portfolio average return, market portfolio required return, stock market average return, all stocks average return, stock average required return, average risk stock return, stock market average return, market portfolio necessary return, stock price index average return, stock price index return, etc.

(4) When β = 1, β× (RM-RF) becomes (RM-RF). Other commonly used names of (RM-RF) are: market risk premium, average risk return rate, average risk premium, stock market risk additional rate, stock market risk return rate, market portfolio risk return rate and market portfolio risk return rate.

(5) Other common names of β× (RM-RF) are: risk return rate of stocks, risk return rate of stocks, risk return rate of stocks, etc.

Advantages of capital asset pricing model:

Simple and clear. He divided the price of any risky securities into three factors: risk-free rate of return, risk price and risk calculation unit, and organically combined these three factors.

Practicality. It enables investors to evaluate and select various quoted financial assets according to absolute risk rather than total risk.