What is the Capital Asset Pricing Model (CAPM)?
The CAPM is a model that describes the relationship between risk and expected return in financial markets. It posits that the expected return of an asset is linearly related to its systematic risk, measured by beta. This means investors should be compensated for taking on risk that cannot be diversified away, specifically market risk. It helps in understanding how much return is expected for a given level of non-diversifiable risk.
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