A measure of the volatility of a share in relation to the overall market. A share with a high beta coefficient is likely to respond to stock market movements by rising or falling in value by more than the market average.
The Capital Asset Pricing Model (CAPM) is a sophisticated model that establishes a relationship between expected risk and expected return. It operates on the principle that investors require higher returns as compensation for higher risks.
The risk premium represents the difference between the expected rate of return on an investment and the risk-free rate of return (such as those on government bonds) over the same period. It accounts for the compensation investors require to bear the additional risk associated with investment.
The rate of return on an investment that has no risk. The return on US and UK Treasury bills is often regarded as a very close approximation to this rate. The risk-free rate is an important concept in the Capital Asset Pricing Model (CAPM).
