CAPM: NAVIGATING INVESTMENT RISKS AND RETURNS

The Capital Asset Pricing Model (CAPM) is a financial model that helps investors understand the relationship between risk and return.

CAPM assumes that investors are rational and risk-averse, meaning they prefer less risk for a given level of return.

The model uses beta, a measure of a stock's volatility, to determine the expected return of an investment.

CAPM also takes into account the risk-free rate of return and the expected return of the market as a whole.

Investors can use CAPM to determine whether a stock is overvalued or undervalued based on its expected return.

CAPM is a useful tool for portfolio management, as it can help investors optimize their portfolios by balancing risk and return.

However, CAPM has its limitations and may not always accurately predict returns, especially in volatile markets.