[Verse 1]
In the world of finance there's a model we need
To predict the returns that investors will feed
It's called CAPM and it shows us the way
To calculate risk and what stocks should pay
The formula's simple, let me break it down
Risk-free rate plus beta times the market crown
Market premium tells us the extra reward
For taking on risk that can't be ignored
[Chorus]
Beta measures systematic risk
One means you move with market's twist
Less than one, you're more stable and calm
Greater than one, you rock like a storm
CAPM shows expected return
Risk-free rate plus premium you earn
Beta times market, that's the key
Systematic risk for all to see
[Verse 2]
Beta coefficient tells a story so clear
How much your stock moves when market shifts gear
If beta is zero, you don't move at all
If beta is negative, you rise when markets fall
Apple might have beta at one point two
When market goes up ten, Apple climbs twelve through
Utilities often sit at zero point eight
More stable than market, a conservative fate
[Chorus]
Beta measures systematic risk
One means you move with market's twist
Less than one, you're more stable and calm
Greater than one, you rock like a storm
CAPM shows expected return
Risk-free rate plus premium you earn
Beta times market, that's the key
Systematic risk for all to see
[Bridge]
Treasury bills give us the risk-free rate
Market premium is what we calculate
Total market return minus risk-free base
That's the extra reward for the risk we face
Diversification kills specific risk away
But systematic risk is here to stay
That's what beta captures, market-wide
The risk you cannot run and hide
[Chorus]
Beta measures systematic risk
One means you move with market's twist
Less than one, you're more stable and calm
Greater than one, you rock like a storm
CAPM shows expected return
Risk-free rate plus premium you earn
Beta times market, that's the key
Systematic risk for all to see
[Outro]
So remember CAPM when you invest
Beta tells you which stocks are stressed
Expected return equals risk-free plus beta times premium
That's the model, now you're gleaming