What does the acronym CAPM stand for?

The acronym CAPM stands for Capital Asset Pricing Model. This is a fundamental concept in finance that establishes a relationship between the expected return of an asset and its risk, as measured by beta. The CAPM provides a framework for evaluating the potential returns on an investment while considering the risk associated with it. This model is particularly useful for investors making decisions on portfolio allocation, as it helps them assess whether an asset is adequately priced for its level of risk.

In using the CAPM, investors can determine a theoretically appropriate required rate of return based on the asset's systemic risk, allowing for a more informed decision-making process. The model is widely accepted in financial markets and plays a crucial role in portfolio management and corporate finance.