1011 Measuring Market Risk CAPM- Theory of the relationship between risk and return which states that the expected risk premium on any security equals its beta times the market risk premium Market risk premium =Im-rf Risk premium on any asset =r Expected Return =r f B(rm-rf) Irwin/McGraw-Hill CThe McGraw-Hill Companies, Inc, 2001©The McGraw-Hill Companies, Inc.,2001 10- 11 Irwin/McGraw-Hill Measuring Market Risk CAPM - Theory of the relationship between risk and return which states that the expected risk premium on any security equals its beta times the market risk premium. Market risk premium = r - r Risk premium on any asset = r - r Expected Return = r + B(r - r ) m f f f m f