RISK AND RATES OF RETURN FORMULAS

Expected Return Capital Asset Pricing Model

Required Return
𝐸𝑅 = 𝑃𝑟
𝑅𝑅 = 𝑟𝑅 + 𝛽 𝑟𝑀 − 𝑟𝑅
=1
Beta

Standard Deviation 𝑅𝑅 − 𝑟𝑅
𝛽=
𝑟𝑀 − 𝑟𝑅
Market Return
𝑆𝑇𝐷𝑒𝑣 = 𝑟 − 𝐸𝑅 𝑃
=1
𝑅𝑅 − 𝑟𝑅
𝑟𝑀 = +𝑟𝑅
𝛽
Risk Free Rate
Coefficient of Variation 𝑅𝑅 − 𝛽𝑟𝑀
𝑆𝑇𝐷𝑒𝑣 𝑟𝑅 =
1− 𝛽
𝐶𝑉 =
𝐸𝑅
Wherein:
ER = expected return
Portfolio Expected Return
r = rate of return

𝐸𝑅𝑃 = 𝑤𝑟 P = probability
=1 W = weight
STDev = standard deviation
Risk Breakdown
CV = coefficient of variation
𝑆𝐴𝑅/𝑆𝑇𝐷𝑒𝑣 = 𝑀𝑅 + 𝐷𝑅
β = Beta
RR = required return
rRF = risk free rate
rM = market return