CAPM Explained - What is the Capital Asset Pricing Model? (AMZN Example)

Рет қаралды 106,090

3 жыл бұрын

In this video we'll explain what the Capital Asset Pricing Model (CAPM for short) is, and how is used in practice by finance practitioners.
According to the C.A.P.M, or CAPITAL ASSET PRICING MODEL, the return you can expect from a stock is equal to the risk-free rate + the market risk premium scaled by a factor called beta, which measures the market risk of the stock you are analysing.
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Chapters
0:00 intro
0:15 the risk free rate
0:29 why risk-free?
0:43 the market risk-premium
1:25 what beta is and what it measures
2:02 a negative beta
2:24 the security market line
2:50 pricing Amazon using the CAPM
3:59 security market line as a pricing tool
4:43 applications
#CAPMexplained #WhatistheCAPM #CapitalAssetPricingModel

Пікірлер: 170

@strongstrong-jz2kl 2 ай бұрын

They say third times a charm, am officially a Capm🎉🎉 for all my repeat test takers don't give up and don't be discouraged.

@EmanuelaEmanuela-cb7me 2 ай бұрын

I have sat for CAPM for the 2nd time now and still failed, i guess CAPM Certificate isn't meant for people like me😭

@Tyler674 2 ай бұрын

The exams are getting tougher everyday, i can't miss this opportunity I've heard a lot about his good works in the life of certified projects Managers across the states

@StrikerStriker-hs2kw 2 ай бұрын

Please how can I reach this man I’m really in need of his help🤲

@strongstrong-jz2kl 2 ай бұрын

His info

@strongstrong-jz2kl 2 ай бұрын

@rebayreborn3348 8 ай бұрын

You summarized what my professor tried to explain for 2 hours in 5 minutes. Amazing explanation thank you!

@Sam-fp1cd 2 жыл бұрын

Got a Masters' in Finance and this is a much, much better explanation of CAPM compared to how I was taught in Uni. Thanks!

@niralidesai1359 2 жыл бұрын

I am taking an intro to finance class at Harvard and this was video was so much more helpful than all the books im trying to refer! Thank you!!

@BrainyFinance 2 жыл бұрын

This made my day! Thank you for letting me know :)

@MrSupernova111 2 жыл бұрын

Fancy school! What's your major?

@kishorgaikwad4219 2 жыл бұрын

@@BrainyFinance what’s your name

@mcdonalddaniel1799 Жыл бұрын

Do you really need to mention Harvard! @Nirali, Don't tell us about your personal life.

@vicagranata 5 ай бұрын

@@mcdonalddaniel1799envy doesn’t look good on pretty your face, babe

@gator966 2 жыл бұрын

My prof. couldn't explain it this simple on a masters level, you’re great, thanks.

@Crispyroce 2 жыл бұрын

Always kept messing up valuation questions, this video finally made me understand how a stock may be over/under valued! Tysm

@kimdennany7069 2 жыл бұрын

Thank You!! I have spent hours trying to understand this - I can't believe you cleared up all of my confusion in 5 mins!! I'm subscribing right now!!

@flyshy514 Жыл бұрын

Looked all over and this was the best and simplest explanation

@Realalexostrowski 5 ай бұрын

I've been struggling to understand this for three weeks. My 15 year tenured professor took 5 class periods trying to explain it and I still was failing to understand this concept... you explained it in 5 minutes and I think I finally have an understanding of it. Thank you!

@TheRonald2024 2 жыл бұрын

You're helping me so much during my equity training at Bloomberg! Well explained, thanks!

@EasyRhythmsRealm 2 жыл бұрын

the fastest and most comprehensive explanation of the CAPM you can find on the net, congratulations

@BrainyFinance 2 жыл бұрын

This means so much to me! Thank you for your feedback :)

@ibrahimalbaz2595 4 ай бұрын

I watched some videos about the CAPM, you are the best person who actually explained it so far, thank you soooo much for helping me out

@krislove1167 2 жыл бұрын

This is the best capm explanation so far. I watched the other two above you and they were inferior. I think it's because you explain exactly what the jargon mean. Why do we take the US bond rate as our risk free rate? Oh, because they're unlikely to default, got it! And etcetc... It helps paint a story and makes sense of the equation. Thanks a lot.

@maheshwarbanuk4389 3 жыл бұрын

I was looking to revise my knowledge of CAPM and Stock Valuation. This video is just right!

@BrainyFinance 3 жыл бұрын

Thank you! It means so much to me to know that this content is helpful ☺️

@AliAbbas-ol7xb 9 ай бұрын

Loved every bit of the explanation! Thank you! Really cleared up my confusion.

@6Gianco9 2 жыл бұрын

Complete and clear explanation. Thank you for this kind of video, they are really well made.

@DipankarDas-en1uk 23 күн бұрын

Great explanation, thank you for making it easy and understandable

@terra_solido 9 ай бұрын

Excellent video, clear concise explanation. Thank you!

@tanyaharris6667 10 ай бұрын

I'm preparing for the CFP Exam and this explanation is very simple!! Thank you! 😊

@edwinscvc6948 2 жыл бұрын

Beautiful, simply, natural, accurate,profesional explain. Keep doing videos. You encourge to much. Congratulations. Att.

@amanullahsamoon786 Жыл бұрын

Smartly explained with real life example. Great 👍❣️

@dipikamall4967 2 жыл бұрын

Extremely well explained. Thank you.

@najamuddin9804 3 ай бұрын

it was perfect, short but fully explained with example. I have seen lot of videos, all much longer and not even half the value.

@hallowedagaba835 Жыл бұрын

Thanks, this helped me understand the CAPM and how it relates to cost of equity

@roldjam 2 жыл бұрын

If I could give this video 1000 likes, I would! 👏👏👏 Spent 3 weeks struggling with certain concepts CAPM being one and you nailed it in…5 minutes? 🐐

@BrainyFinance 2 жыл бұрын

Thank you so much :D

@Suchendra1 Жыл бұрын

Perfectly and clearly explained.

@HUSTLE-HUB 3 жыл бұрын

Liked, you made it very easy to understand!

@D3adtrap_ 2 жыл бұрын

Understandable and succinct, why do I even go to uni when we've got this? Bravo!

@BrainyFinance 2 жыл бұрын

That's a lovely thing to say :) tysm!

@hcab8118 2 жыл бұрын

Thank you for such clear presentation

@sharq209 2 жыл бұрын

Very helpful video, Thank you! I feel more informed about the use of this formula

@matthewskala9856 2 жыл бұрын

love it! simple, clear and on point!

@BrainyFinance 2 жыл бұрын

Thank you I really appreciate it!

@danrodgers8649 2 жыл бұрын

Great video which has helped to cement my knowledge, thank you! I also found it strangely cathartic after spending hours in the textbooks 😄

@knight1506 3 жыл бұрын

I like your examples of S&P and stocks! it makes everything easy to understand, thank you, you intelligent and gorgeous lass

@BrainyFinance 3 жыл бұрын

Your comment made my day! Thank you :)

@random-trips 2 жыл бұрын

very very well done, many thanks 🙏🏻

@Lelouch_VI_Brittania Жыл бұрын

Very helpful, thank you for explanation.

@keandainleslietimngum7202 Жыл бұрын

Wow, that was very explicit. Thanks and I will like you to do another video on how to value a company

@nomanalishah6790 3 жыл бұрын

Mam I was confused regarding negative beta but after watching your efficient video I got everything about negative beta thank u .

@BrainyFinance 3 жыл бұрын

That's great to hear! Thank you for letting me know 😊

@saswatnayak4759 2 жыл бұрын

crisp and perfect..

@GEconomaster112 8 ай бұрын

Thanks, very clear

@danraes5661 3 жыл бұрын

very clear and nicely presented. I hope you will make a series on equity valuation or portfolio management. Thanks!

@BrainyFinance 3 жыл бұрын

That's the plan! Thank you so much for leaving me feedback

@samratsaha3346 2 жыл бұрын

U made the concept very easy ...thank you very much

@BrainyFinance 2 жыл бұрын

Thank you for your lovely comment ☺️

@nicolasrodrigo9 2 жыл бұрын

Thanks a lot for the video!

@Everlasting33 Жыл бұрын

So useful info, thanks and appreciate your explanation

@chrisyoung949 2 жыл бұрын

Excellent!

@reggierosario4708 2 жыл бұрын

Great and simple explanation !! thanks !!

@BrainyFinance 2 жыл бұрын

Thank you so much! So glad it was helpful :)

@dolu8418 Жыл бұрын

great job, very useful video

@Nz-randy17 2 жыл бұрын

this video really helped me, thank you.

@ShrutiSingh-qn8lu 2 жыл бұрын

You made it clear

@slamminjason Жыл бұрын

GREAT VIDEO!

@MahPerfumeseParfums Жыл бұрын

awesome video! thank you

@user-xedwsg 2 жыл бұрын

Excellent video!!

@trivikramkumar8604 Жыл бұрын

Congratulations! You got 1 more subscriber... 😊👍👍

@richardsalley9848 3 жыл бұрын

Very nice! Thank you for sharing your knowledge.

@BrainyFinance 3 жыл бұрын

Thank you for your comment and welcome to the channel 😊

@dirkmuller6851 Жыл бұрын

Nicely explained!

@amitozsingh2124 2 жыл бұрын

Very useful

@divyangshukla6674 3 жыл бұрын

Beautifully explained especially that graph which I found nowhere on YT. Thanks from India !

@BrainyFinance 3 жыл бұрын

Thank you so much! Do you mean the Undervalued/overvalued graph?

@divyangshukla6674 3 жыл бұрын

Security Market line and depiction of beta factor along with under/overvalued !

@BrainyFinance 3 жыл бұрын

Thank you! I do think that graph is so important to understand why the CAPM was created in the first place: i.e. pricing!

@swayamkumarpatro776 2 жыл бұрын

Cool Explanation.....!!!

@michaelabbott2345 9 ай бұрын

Hi there, It looks like there is an error in here. If the actual historic average return of a stock is well above the expected return as per the CAPM model then the stock is OVERVALUED not undervalued as per the video. This is because the CAPM is a time constrained model looking only at single period returns. Please confirm your position on this?

@nowellryan 26 күн бұрын

It seems like no one else have picked this out. AND Why returns above the security market line is UNDERVALUED and returns below the security line is OVERVALUED ?

@annawilson3824 2 жыл бұрын

Awesome!

@williamrivera162 2 жыл бұрын

Congrats. Very clearly and well explained.

@BrainyFinance 2 жыл бұрын

Thank you ☺️ it means a lot to me

@berosar 2 жыл бұрын

Way clearer than my teachers

@IGF-en7gn 2 жыл бұрын

Thanks!

@gauravmohan9271 Жыл бұрын

Thank you

@orkhanhasanov1922 3 жыл бұрын

very clear explanation !

@BrainyFinance 3 жыл бұрын

That's awesome, I am glad you think so!

@vijaykumarlokhande1607 5 ай бұрын

Thanks❤

@arunrajbhandari1656 2 ай бұрын

I love you

@CallOfDutyVideos99 2 жыл бұрын

amazing video

@BrainyFinance 2 жыл бұрын

Thank you :)

@RealRosieRuiz 3 жыл бұрын

BRILLIANT! Thank you! Best CAPM video on KZfaq! And I've seen ALL OF THEM! SUBSCRIBED!

@BrainyFinance 3 жыл бұрын

That's so nice to hear that you found the video useful, it really means a lot to me. Welcome to the channel!

@tatanet3694 3 ай бұрын

My prof spent more than 3 hours explaining this in class and I didn’t understand a thing😢 Thank you for the video ❤

@h.l6849 2 жыл бұрын

Hi thanks for the video . Quick question with regards to the s&p average returns. Is it a standard to use 20years? Can i use 10years, 5 years etc.

@muhammadehsan402 Жыл бұрын

Please make more video for finding intrinsic value dividend method

@augustusg857 2 жыл бұрын

Hi there. Iim wondering if you can talk about the alpha in a regression model. Good video btw.

@ghasemkaymasisalkhori4743 Жыл бұрын

thank you for it, we how to find currency uper value or lower value , thanks

@babakfarazdaghi8790 9 ай бұрын

Legend

@Error-mc1hz 2 жыл бұрын

I am a little confused regarding modes of Asset pricing model. Does shape's index also include in Asset pricing model?

@marcwhite6267 Жыл бұрын

Could you please explain how to calculate an unlevered beta, i.e. the beta of the equity in a firm? Aswath Damodaran has always warned against using Bloomberg betas in DCF valuations.

@sammathew4420 Жыл бұрын

Hi could you please tell the concept of time value of money in SML?

@owensu4761 2 жыл бұрын

Hi, many thanks for ur succinct explain, however, I was wondering how should we determine Rf concerning it is 10 / 20 years of bond yield ? Tks

@owensu4761 2 жыл бұрын

And the reason that we use S&P return is that Amazon is one of them, am I correct? Tks

@Li-ps2is 2 жыл бұрын

Hi, would you mind explain how to calculate the average return of Amazon?

@aryankulkarni2466 3 жыл бұрын

lovely! I'm a CFA candidate and this was such a great revision for me, loved the way u explained, can we connect over social media?

@BrainyFinance 3 жыл бұрын

Thank you for the positive feedback! I'm very happy you found it useful. The social for this channel is a work in progress as we speak, stay tuned! :)

@bdndhhdhbdmddj3098 3 жыл бұрын

thank you, i have a question! the way you calculated the capm for amazon, i had a reversed question was given 6 actions each one with its own beta, expected return , and expected return calculated trough capm. the question was to represent the values given in a graph , and to classify the 6 actions (over evaluated or the opposite) i'm sorry if my English isn't understandable or if i wrote a weird sentence my language is frensh.

@BrainyFinance 3 жыл бұрын

Thank you for your comment! To answer the question you should compare each actual expected return to the theoretical one calculated through the capm. If the actual is greater than the theoretical, the stock is undervalued and viceversa. Hope this helps! :)

@bdndhhdhbdmddj3098 3 жыл бұрын

that's what i thought , thank you so much.

@lydiaudoh5866 Жыл бұрын

GOGY is a strong contender in the fast-growing energy drink market, with a 200% return since the launch.

@bisolaolagoke1640 2 жыл бұрын

Please how did you get the average expected return for 20years? Like where did the 79% come from?

@cuad0130 2 жыл бұрын

Thank you! If you were to use Alibaba (nyse) as an example, would you still use the US treasury bond yield as the risk free rate or would you use the China government bond yield instead since it is a Chinese company?

@BrainyFinance 2 жыл бұрын

Excellent question! I would use the US t-bill as a risk free proxy, although nowadays Chinese government bonds are more mainstream as an asset class I would still consider them riskier than t-bills

@cuad0130 2 жыл бұрын

@@BrainyFinance Amazing thanks!

@SherMashriqi Жыл бұрын

How to calculate market return? please help me in this regard Best wishes

@boredomgotmehere 11 ай бұрын

Why are you not making any new vids? Missed you!!

@krishant 2 жыл бұрын

♥️😊👍🏻

@dewmiwithana9239 3 жыл бұрын

❤

@BrainyFinance 3 жыл бұрын

Thanks for watching!

@abhijithmohan9666 2 жыл бұрын

Let me just stand on my table and shout, "Oh captain, my captain"🙏

@SaptadipDip Жыл бұрын

If a stock's price is above the SML, it means that the market values the stock at a higher expected return than the CAPM suggests based on its systematic risk (beta). shouldnt be the stock over-valued? :I can anyone explain please why it was stated undervalued in the video? :I thank youu

@nowellryan 26 күн бұрын

I have the same concern!

@SaptadipDip 25 күн бұрын

Think like this way, at a given risk,snp500 gives 15% and plug power gave you 5%. From your point of view,how would you see plug power stock? Overvalued right? She mentioned it but I missed out@@nowellryan

@leylaguliyeva4205 Жыл бұрын

May you explain APT?

@irumasif3506 4 ай бұрын

thankssssssssssssssssssss

@ribika9385 2 жыл бұрын

What does it mean if the question says assume both stock are correctly priced?

@BrainyFinance 2 жыл бұрын

Thank you for your comment! Could you please write the whole question?

@pigslefats 4 ай бұрын

So why do you subtract RF

@randomdude7384 3 жыл бұрын

I think you've confused "the expected market return" for the equity risk premium. An ERP is what you'd ask as an investor as a premium to put your money into an asset that's not risk-free.

@BrainyFinance 3 жыл бұрын

That's a really good point! I might have rushed through the difference so thank you for pointing it out! :)

@randomdude7384 3 жыл бұрын

@@BrainyFinance You're most welcome. The thing with the regression betas that come from the Bloomberg terminal, they're backward-looking, they reflect the past. You can also estimate the beta of your company's equity, the sector/business the company's in, and an unlevered beta of the equity in your company.

@maricelagutierrez4194 2 жыл бұрын

Now I'm confuse

@MrSupernova111 2 жыл бұрын

Does anyone in the industry actually take CAPM as a meaningful calculation to make buy/sell decisions? Both of the sources for the RF and B are subjective. Also, CAPM says nothing about economic or business cycles. Personally, I think this formula is useless unless, perhaps, used in comparison to other firms within the same industry. But if I'm considering buying a stock its unlikely that I'm going to weight on CAPM to make a purchase decision after I performed proper industry analysis based on more concrete factors. I think the same can be said for other financial metrics like the Sharpe ratio or the PE ratio. They're nice in theory but they don't reflect reality very accurately. I'd love to hear your thoughts on the matter.

@eric7782 2 ай бұрын

I tried this and it is not working as you worked it out for me. (1.7%+1.2%*13%-1.7%)

@Family-hg5ry 2 жыл бұрын

Am I obessed or are you too damn pretty😍 your accent tho🤤🤤❤️

@dewmiwithana9239 3 жыл бұрын

6. Security A has an expected return of 7%, a standard deviation of returns of 35%, a correlation coefficient with the market of 0.3, and a beta coefficient of 1.5. Security B has an expected return of 12%, a stand ard deviation of returns of 10%, a corretation with the market of 0.7, and a beta coefficient of 1.0. Which security is riskier! Why? Can you give me an answer to this ?. Is it SD / Expected Return ...then the lowest value is the less risky ?. Is it?.

@BrainyFinance 3 жыл бұрын

Thank you for your comment! In your example I would say security A is riskier since it has a higher standard deviation and a higher Beta (which measures market risk). Also if you calculate the sharpe ratio (as the ratio between the expected return and the standard deviation) you will see that security B offers higher risk-adjusted return (1.2 vs 0.2). Hope this helps :)

@dewmiwithana9239 3 жыл бұрын

@@BrainyFinance yeah i got it .....thank you very much sister ❤

@dewmiwithana9239 3 жыл бұрын

@@BrainyFinance can we take the coefficient of variation of expected return to calculate risk ? Then the A is 5 & B is 0.833 ? Then can we say the most riskier is A ?.

@BrainyFinance 3 жыл бұрын

Exactly! Really good point :)

@dewmiwithana9239 3 жыл бұрын

@@BrainyFinance thank you so much ❤😍

@discountmethodinyi-jing148 3 жыл бұрын

I ask you a key question: Ra = Rf + Beta * (Rm - Rf) Ra = 5% with price of stock a $15 Rf = 3% with market value of bond market $100*10^6 Rm = 7% with market value of stock market $100*10^9 and Beta = 0.5 So, CAPM is relative equilibrium, i.e. 5% = 3% + 0.5 * (7% - 3%), and it is wondered how to exchange stock return Ra for stock profits $Ra for real capital asset pricing? In reality, this is a key mistake of CAPM.