The capital asset pricing model (CAPM) is an idealized portrayal of how financial markets price securities and thereby determine expected returns on capital investments. The model provides a methodology for quantifying risk and translating that risk into estimates of expected return on equity. A principal advantage of CAPM is the objective nature of the estimated costs of equity that the model can yield. CAPM cannot be used in isolation because it necessarily simplifies the world of financial markets. But financial managers can use it to supplement other techniques and their own judgment in their attempts to develop realistic and useful cost of equity calculations. 

The CAPM formula : E(R_{i}) = R_{f}+\beta_{i}(E(R_{m})-R_{f})