Capital Asset pricing model is a model in order to determine the expected rate of return of an investor while he is investing into the equity shares of a company and Capital Asset pricing model is very popular model which is adopted by a large number of investor and company in order to determine the rate of return with an investor is expected to make out of the market.

Capital Asset pricing model will be dependent upon various types of factors which investor is looking for determination of the expected rate of Return In advance of those factors will be including risk free rate of interest which will be determined by the treasury bonds and he will also be looked for the market risk premium which will be a difference between the market rate of return and the risk-free rate and the beta of the company will also be looked for because beta of the company will be reflecting the volatility of the company and the systematic risk which is associated with the company and these kind of systematic risk will be simply affecting the ability to take risk of the investor and make a higher rate of return so when there would be a higher beta associated with the company then investor would be looking for a higher rate of return because he wants to get compensated for higher rate of risk bearing.

Capital Asset pricing model is just based on one factor model and it is taking the beta in order to determine the systematic risk and it is a highly historical method of measuring expected date of Return because there had been preaching of arbitrage pricing theory as these are based upon the expected rate of return but figures are derived out of the past returns and this is also so using a large number of factors that investors are generally risk-averse in nature and Markets are highly efficient in nature so these type of assumptions will make the Capital Asset pricing model figure out the expected rate of return of the investor.

Capital Asset pricing model are also assuming that it is a tax free world and there are no taxes which are existing and it is also assuming that there are no transaction cost existing in the market and it is also a during that there is no restriction on the borrowing and lending of the various securities so there should be a proper determination of all these factors in advance in order to expect the rate of return which an investor is required to make out of the market in exchange of the risk which is going to take for making a higher rate of return and it will be determined after factoring in the beta and risk free rate, so Capital Asset pricing model will be helping in order to determine the expected rate of return of investor out of market.