# CAPM Capital Asset Pricing Model in 4 Easy Steps – What is Capital Asset Pricing Model Explained

CAPM Capital Asset Pricing Model in 4 Easy
Steps – What is Capital Asset Pricing Model Explained Hello I’m back and welcome once again to
another easy lesson or review or tutorial by MBAbullshit.com. So, today or this time our topic will be on
or about CAPM or the Capital Asset Pricing Model in the field of finance or Financial
Management. Management sounds scary or complicated but
don’t worry this is just MBAbullshit. And we can cut through the bullshit and you
can see how easy and simple it actually is. Okay, just remember you can always come here
whether you’re a business student, college BBA or MBA or if you’re an executive who
just wants to learn because you don’t have time for MBA or because you need refresher
from your previous MBA or if you’re a non business moron like me before and maybe an
artist, or a creative person or a doctor and you just want to learn the concepts of MBA
quickly and easily. You can always go to MBAbullshit.com for lots
of free video. Okay? So now, let’s go to the Capital Asset Pricing
Model. Now, most professors will explain the Capital
Asset Pricing Model or CAPM as a formula which looks like this: Ke = Rf + B (Rm-Rf). Now, I know this formula over here can look
scary and intimidating but please do not panic because this is actually very simple when
I show you step by step how easy it actually is. So, don’t worry about it but in order to
allow you to understand it well, I want you to first remove this first complicated bull
shit from your brain right now temporarily. We’ll get back to it later. Remove it from your brain, don’t panic and
I just want you to focus on this other thing I’m going to show you now. Okay? You’re going to see, it’s not complicated
at all. So, I’m going to start by telling you a
story and in the story I’m going to give you a choice. Let’s say, I offered you a risk free investment. Okay? It was an investment or it’s an opportunity
for you to earn money by putting your money in my bank. You have a deposit account in my bank and
my bank is guaranteed by the government and so therefore it is risk free, zero risk and
for sure the bank will not collapse like what happened in the recent economic crisis. In this case you’re 100% sure that the bank
would not collapse. And you have the opportunity, you have the
offer to deposit your money in this bank and the bank will give you an interest of 2%. So the 2% here is what we called the risk
free rate. So let’s just say that you can put your
money in my bank, my bank has no risk and you can earn 2% interest or 2% income or 2%
profit on your money by depositing that money with this bank. And then I give you a second choice with an
investment which has medium risk. And for this example, let’s just use or
let’s just say that the United States stock market, the general stock market has medium
risk. So bank here, the bank deposit has no risk
or zero risk and the US general stock market has medium risk which is also called systematic
risk. Now, don’t worry so much about the systematic
risk here. This is just MBAbullshit and for now let’s
just use the word medium risk and we can get back to the systematic risk later. It’s called systematic risk because it represents
the risk of a certain system which is usually used such as the United States stock market. But if you don’t understand what I just
said don’t worry about it, just forget it for now. For now let’s just say it’s medium risk. Now, what if I also offered you a risk free
investment, zero risk investment or deposit earning 2% and I also offered you a medium
risk investment? And this medium risk investment would earn
you also 2%. It would also earn you 2%. So if you had to choose between this investment
here or this investment here, which one would you choose? Which one? They earn the same amount but this one has
higher risk than this. Well if you have at least some intelligence
then for sure you would choose this investment and not this one. Why? Because in this investment you earn 2% but
you have no risk. In this investment you also earn the same
small profit of 2% or you expect to earn the same small profit of 2% but you have even
higher risk compare to this one over here. So of course it makes much better sense to
put your money here in the no risk investment. Let me ask you; let’s say I was a stock
broker who trades stocks in the United States and I want to convince you to move your money
away from here and instead put your money here. How would I do that if I’m only giving give
you 2%? Well, of course the normal way would be for
me to try an offer you more than 2% and I’d tried to offer you extra money, extra profit
or extra percentage here. That way it would be worth it for you to move
your money from here to here because now you’re earning more profit in order to pay you for
the extra risk. For this example, let’s just say I’d offer
you an extra 6% return or extra 6% profit on your money to place your money here instead
of here. So now, these two investments have equal attractiveness,
let’s just called it equal attractiveness because here you only earn 2% but you’ve
got no risk, here you earn 2% plus 6% but you have medium risk and medium risk is more
than no risk. So now, these 2 choices should have equal
attractiveness. debbierojonan Page 1

## 37 thoughts on “CAPM Capital Asset Pricing Model in 4 Easy Steps – What is Capital Asset Pricing Model Explained”

• Weinhold Weinhold says:

Warren buffet, a trader, and an economist are on a desert island trying to value a stock. Buffet looks at a bunch of financial ratios and growth metrics from financial statements, and predicts the stock’s profitability and values the stock based on simple ratios like return on assets, return on equity, price to book value, and price to earnings, compares these to the stocks price and comes up with an intrinsic value and margin of safety. The trader looks at the ticker and, if it is going up and isn’t approaching some historical resistance, says “more than it is now. The economist says “assume we could predict the future….”
.

• Zola Nhlangulela says:

I did not do finance but i can debate with professors from the kmowledge i got from Youtube..

• Hahauravirgin says:

hell yeah

• Tyrone Mguni says:

😂MBA bullshit

• Asha Beauty says:

Thank you for your help. The song was too loud

• Uzair Haroon says:

"A stock broker in the US, who trades stocks in the US"
No shit bro lol

• Nodakkian says:

What the actual fuck actually slid out of my chair laughing 😂, that’s your music bed…an extremely wierd combination of discombobulated fart noises that drowns out your own voice levels!! I feel like this is an Elsa gate video… just jaw droppingly weird lol

good demo

• Nor Azah says:

thats cool! it is really helpful, thanks a lot.

• Siana Campbell says:

Greatest find of 2018.

• Syed Hassan Raza says:

Thanks for this bullshit it really helped, you taught wayyyy better than my teacher btw why you sound drunk or high whatever ;D

• 达康书记 says:

bullshid

Wacc

• Qi ZHANG says:

• Rana Simeen says:

Hello can u do vdo on leverages

• rene girasek says:

LOL

that's my jam

• Swee Lee says:

at 6:38 i almost questioned your intelligence

• Promise Ntuli says:

AWESOOOMEEEE

• Torio Islam says:

thx for teach

• Xiao ZHI says:

you really gave me confidence in the first 3 min….thx alot

• A G says:

indeed quite a lot of bullshit in the video

• Nerissa Caparas says:

thank you so much!!!

All i can say is you are a bullshit talkin' genius,the video is the best by the way.

• MrMentalpuppy says:

that funky music

• Spencer Herrick says:

Just wanted to say Thank You for making these videos. I have a professor that's not very good at explaining things. You really made it easy to understand. I am a second year MBA student at Wheeling Jesuit University. Thanks again!

• 1JayVon says:

@ 2:16 I rewinded that part over and over laughing harder each time as I envisioned my graduate school finance professor watching this. I remember first learning this crap back in January this year thinking why the hell am I getting a masters in accounting and finance and not just accounting where it all makes sense? You definitely made my day (or night I should say) as I am sitting here struggling doing the homework as I do every week with this stupid finance class. Can't wait for this semester to be over. May 11th cannot come fast enough!!!

• Wei Xu says:

Hey man you really made me laugh loud when you say ''if you have least some intelligence..then start to circling the wrong option'' its so funny. However This video is really really help me a lot than i sitting in the class. Thanks for sharing all these

• blessedone726 says:

thanks for the help on my homework and not making it so boring! 🙂 easy to follow and man I finally doggone understood it! all the reading in the world and I could not get it, watched the video and got it! kudos!

• Nathan McKenzie says:

CAPM has its shortcomings though. Beta only measures past volatility. It doesn't take into account the future potential and projected value. Beta's also set as a slope on a trend line. The individual points may differ.

• Hendrik M. says:

save a lot of time and watch this at 2x speed

• Sheikh Monjurul Islam says:

sir u r genius!!! and verry much talkative too 🙂 pls don't make the vedio bullshit…

• 3transporter says:

Good video. Really breaks it down.

• San Fran says:

7:12 looks like my testicles

• slikslik313 says:

"If you have at least some intelligence" 😀