Capital asset pricing model

The Capital Asset Pricing Model (CAPM) is a way for investors to figure out how much money they can make from investing in a certain stock (or any other type of asset). It helps you decide how much you should pay for a stock and how much money you can expect to make from it.

Imagine you’re the boss of a company. You need to decide which stocks to buy with the company's money. You don't want to buy stocks that don't make money, so you have to do some research to figure out which stocks will make money and which won't. The CAPM is a mathematical formula that predicts how much money you can make from a certain stock. It takes into account the stock market's overall risk, the stock's risk, and the expected return on the stock. Then it figures out how much money you can make from investing in the stock. That way, you can decide which stocks to buy and how much money you can expect to make from them.