Beta and CAPM

Cost of equity capital

The expected rate of return of equity investors for the firm raising funds.

Specific risk

The risk that is unique to a particular asset or company.

Unspecific risk

The risk that affects the overall market or economy.

Efficient Market Hypothesis

The theory that securities prices reflect future expected cash flows based on all available information.

Dividend discount formula

A method used to value a stock by assuming future dividends will grow at a constant rate.

Perpetuity formula

A financial calculation used to determine the present value of an infinite series of cash flows.

Beta

A measure of a stock's market risk, capturing the sensitivity of the stock's return to market movements.

Sharpe ratio

A measure to evaluate the risk-adjusted return of an investment.

Portfolio risk

Measured by beta, it reflects the sensitivity of the portfolio's returns relative to market returns.

Risk premium

The additional return expected for holding a risky asset over a risk-free asset.