Glossary term
Capital asset pricing model
The capital asset pricing model estimates a required return from a risk-free rate, beta, and market risk premium.
Plain meaning
What CAPM means
The capital asset pricing model, often shortened to CAPM, is a finance formula for estimating a required return. It links the rate to broad market return assumptions and the asset's beta.
Formula role
How OpenBook uses it
OpenBook uses the standard educational formula: required return equals the risk-free rate plus beta multiplied by the market risk premium.
The result is a model output, not a forecast of what an investment will actually earn.
Common confusion
Why CAPM is limited
CAPM is built from assumptions. Different risk-free rates, market return assumptions, or beta estimates can produce materially different required returns.