The Capital Asset Pricing Model (CAPM) is a widely used tool in finance for pricing risky securities and generating expected returns for assets. CAPM describes the relationship between systematic risk and expected return for assets, particularly stocks.Capital Asset Pricing Model CAPM is based on the premise that investors require a higher return for investing in assets with higher risk. systematic risk is the risk that is inherent to the entire market and cannot be diversified away. This risk is also known as market risk. expected return is the average return that an investor can expect to earn on an investment over a period of time.The Capital Asset Pricing Model (CAPM) formula is used to calculate the expected return of an asset. The formula is:-Expected Return = Risk-Free Rate + Beta x (Market Return - Risk-Free Rate)The risk-free rate is the return on an investment with no risk. The beta is a measure of the volatility of an asset in relation to the market. The market return is the return on the market portfolio, which is a hypothetical portfolio that includes all assets in the market.Capital Asset Pricing Model (CAPM) can be used to price assets and to calculate the expected return of an investment. It is a helpful tool for investors and asset managers.
