CAPM = Rf + Beta (Market Return - Risk Free return)

CAPM is very simple to calculate however it suffers from various limitations which make it less reliable. Some of them are given below:

• CAPM uses only historical data as the inputs to solve for a future return of asset which might not be sufficient.
• CAPM assumes Beta of a security to be constant which is rarely the case. Betas of securities are always changing.
• CAPM assumes that all active and potential shareholders have access to the same information and agree about the risk and expected return of all assets which is far from reality.