CAPM is financial theory that creates a linear connection between the required return on investment and risk. CAPM models are a financial theory. The model is built on the connection between beta, risk-free rate and equity risk premium, or risk-free return rate expected in the market.

CAPM is an easy-to-calculate and stressed return model. This model is often used.

He has been attacked for his ridiculous assumptions.

Despite this criticism, in many situations CAPM yields better results than the DDM or WACC model.