THE CAPITAL ASSET PRICING MODEL HELPS YOU MEASURE EXPECTED RETURNS ON STOCKS

Now that you are nearing the end of this tutorial, you should understand the basics of the Capital Asset Pricing Model. Most importantly, you now should have the ability to identify the components of the CAPM and be able to calculate expected returns on individual stocks using the CAPM.

The CAPM is a very complicated yet essential concept in modern finance. The theory is built upon many assumptions, many of which have come under attack over the years. Yet, the CAPM still stands tall and is widely used today. The CAPM remains popular due to its logical approach to measuring expected returns on risky investments based upon systematic risk.

For more information on investment risk and return, see other tutorials on beta, risk premium, and investment risk.