mark gomes

The Capital Asset Pricing Model (CAPM) is a financial model used to determine the expected return on an investment based on its risk in relation to the overall market. It establishes a relationship between the expected return of a security (like a stock) and the risk-free rate, the market return, and the asset’s volatility relative to the market (often referred to as beta).

Key Purpose of CAPM:
CAPM helps investors understand the relationship between the expected return of an asset and its risk, so they can make better investment decisions. It provides a way to estimate the return an investor should expect, given the asset's risk level compared to the overall market.