Cost of Capital

Cost of Capital

Introduction

Capital Assets Pricing Model (CAPM) is a theory and tool to measure the relationship between the risk of a security or stock and a portfolio of stocks and the expected rate of return this is proportionate with that risk. An organization should know about its cost of capital. CAPM focuses on the supposition or assumption that the market is efficient or security markets are efficient and subjugated by risk averters (those investors who are unwilling to take the risk). This method is used to find out a theoretically appropriate rate of return on an asset. Risky asset ...