Definition of 'Capital Asset Pricing Model - CAPM'
A model that describes the relationship between risk and expected return and that is used in the pricing of risky securities.
The general idea behind CAPM is that investors need to be compensated in two ways: time value of money and risk. The time value of money is represented by the risk-free (rf) rate in the formula and compensates the investors for placing money in any investment over a period of time. The other half of the formula represents risk and calculates the amount of compensation the investor needs for taking on additional risk. This is calculated by taking a risk measure (beta) that compares the returns of the asset to the market over a period of time and to the market premium (Rm-rf).
Theweighted average cost of capital (WACC)is the rate that a company is expected to pay on average to all its security holders to finance its assets.
The WACC is the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere. Companies raise money from a number of sources:common equity,preferred stock, straightdebt,convertible debt,exchangeable debt,warrants,options,pension liabilities,executive stock options, governmental subsidies, and so on. Different securities, which represent different sources of finance, are expected to generate different returns. The WACC is calculated taking into account the relative weights of each component of thecapital structure. The more complex the company's capital structure, the more laborious it is to calculate the WACC.
Companies can use WACC to see if the investment projects available to them are worthwhile to undertake.[
Thetesla (symbolT) is theSI derived unitofmagnetic field strengthormagnetic flux density, commonly denoted asB. One tesla is equal to one weberper squaremetre, and it was defined in 1960in honour ofNikola Tesla. The strongest fields encountered from permanent magnets are from Halbach spheres which can be over 4.5 T.The unit was announced during the Conférence Généraledes Poids et Mesuresin 1960.
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