The valuation of the capital asset pricing model uses a variation of discounted cash flows. However, there are varied ways to measure the investment beta co efficient. The formula is:

Kc = Rf + beta x ( Km - Rf )

where

Kc is the risk-adjusted discount rate (also known as the Cost of Capital); Rf is the rate of a "risk-free" investment, i.e. cash; Km is the return rate of a market benchmark, like the S&P 500.

**Risk and the Capital Asset Pricing Model Formula**

In order to understand the **capital asset pricing model calculator**; one needs to have an understanding of risk on investment.

Typically, Applicant securities carry a risk of depreciation which is equal to a loss of investment to the investor.

Generally, some securities have more risk than others as compared to the additional risk.

The risk involved when evaluating a particular stock is accounted for in the capital asset pricing model formula with beta.

Beta is the adequate term used to measure the **capital asset pricing model** formula to evaluate the risk involved with investing in a particular stock relative to the risk of the market.

The beta of the market would be 1. An individual security with a beta of 1.5 would be as proportionally riskier than the market and inversely, a beta of .5 would have less risk than the market.

**Alternative Capital Asset Pricing Model Formula**

When regression analysis is applied to the capital asset pricing model based on prior returns, the formula will be shown as above. Alpha is considered to be the risk-free rate and epsilon is considered to be the error in the regression.

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