[Verse 1] Portfolio managers calculate the prize Required returns that investors demand Beta measures systematic surprise Market volatility in your hand Risk-free treasuries anchor the floor While equity premiums soar much more [Chorus] CAPM equation, memorize the dance Risk-free rate plus beta times the chance Market premium multiplied precise R equals Rf plus beta times the price Systematic risk you cannot diversify CAPM tells you what returns justify [Verse 2] Beta greater than one amplifies the swing Market crashes harder, rallies bring more gain Beta less than one dampens everything Defensive stocks in sun and rain Zero beta matches treasury yield While negative betas act as shield [Chorus] CAPM equation, memorize the dance Risk-free rate plus beta times the chance Market premium multiplied precise R equals Rf plus beta times the price Systematic risk you cannot diversify CAPM tells you what returns justify [Bridge] Security market line slopes upward true Higher beta earns more compensation due Alpha measures deviation from the norm Positive means outperforming through the storm [Verse 3] Regression analysis reveals the slope Covariance with market gives us hope Standard deviation in the denominator Beta becomes our risk translator Efficient frontier guides allocation choice CAPM gives required returns voice [Chorus] CAPM equation, memorize the dance Risk-free rate plus beta times the chance Market premium multiplied precise R equals Rf plus beta times the price Systematic risk you cannot diversify CAPM tells you what returns justify [Outro] When valuating equity positions held CAPM discount rates help returns be spelled
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