The Capital Asset Pricing Model (CAPM) is a fundamental framework in finance used to determine the expected return on an investment based on its inherent risk relative to the market. CAPM posits that the return of an asset is directly related to its systematic risk, as measured by Beta (β), which compares the asset's volatility to the overall market. The CAPM formula is: Expected Return=𝑅𝑓+𝛽(𝑅𝑚−𝑅𝑓) Where: Expected Return Expected Return is the return projected for the asset. 𝑅𝑓 is the risk-free rate, typically the return on government bonds. 𝛽 is the Beta of the asset, indicating its sensitivity to market movements. 𝑅𝑚 is the expected return of the market. (𝑅𝑚−𝑅𝑓) represents the market risk premium, the additional return expected from holding a risky market portfolio instead of risk-free assets. Using this model, investors can estimate the return required for taking on the risk associated with a specific stock. For example, if a company's Beta is 1.2, the risk-free rate is 2%, and the expected market return is 8%, the projected return according to CAPM would be: Expected Return=2%+1.2×(8%−2%)=9.2% This calculation helps investors assess whether a stock offers a sufficient expected return given its risk profile.