Work out capital asset pricing model instantly with clear inputs, formula shown and shareable results.
The capital asset pricing model prices only market risk: the required return is the risk-free rate plus beta times the equity risk premium. Diversifiable risk earns nothing, because a diversified investor can remove it for free.
CAPM
E(R) = r_f + β(E(R_m) - r_f)
Figures are estimates for planning only. Market returns are not guaranteed, and rates, limits and tax rules change. This is not financial or tax advice — speak to a qualified adviser before acting.
Because it can be diversified away at no cost, so no investor needs compensation for bearing it.
A single risk factor, unstable betas and a hard-to-observe market premium. Multi-factor models address some of this.