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The Capital Asset Pricing Model (CAPM) is a foundational concept in modern finance, introduced by William Sharpe, John Lintner, and Jan Mossin in the 1960s. The model provides a framework to determine the expected return on an asset based on its systematic risk, represented by beta (β), relative to the overall market. CAPM fundamentally rests on the principle that investors require compensation for two types of risk: the time value of money, measured by the risk-free rate, and the risk undertaken by holding a risky asset. The expected return of a security under CAPM is given by the formula: E(R\_i) = R\_f + β\_i \[E(R\_m) − R\_f] where E(R\_i) is the expected return on the investment, R\_f is the risk-free rate, β\_i is the beta of the investment, and E(R\_m) is the expected return of the market portfolio. Beta measures the sensitivity of the asset's returns to the movements in the market. A beta greater than 1 indicates the asset ________ _________ ________ ___ _____ ______ ____ ______ ____ _____ ____ ________.
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