15.6 CAPM formula
Expected Security Return = Riskless Return + Beta X (Expected Market Risk Premium)
R = RF + Beta X (RM - RF)
R : is the expected return rate on a security.
RF: is the rate of a 'risk-free' investment, i.e. cash
RM: is the return rate of the appropriate asset class.
Beta is the overall risk in investing in a large market such as the BSE and the NSE. Each company also has a beta. The beta of a company is that company’s risk compared to the beta (risk) of the overall market. If the company has a beta of 3.0, then it is supposed to be three times more risky than the overall market. Beta indicates the volatility of the security, relative to the asset class.