A required return is the return that investors anticipate receiving from their holding investment in exchange for taking on investment risk.
It varies from security to security due to the security's risk and other factors, as risk factors vary from security to security.
What does the CAPM say about a security's mandatory return?
The Capital Asset Pricing Model (CAPM) is a model that explains the connection between the risk of investing in a security and the expected return.It demonstrates that a security's beta-based risk premium and risk-free return are equal to the security's expected return.
The required rate is determined by a company's capital structure, inflation expectations, and risk-return preferences.
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