The Capital Asset Pricing Model (CAPM) is a foundational finance model that describes the relationship between expected return and systematic risk for an asset, asserting that an asset's expected return equals the risk-free rate plus its beta times the market risk premium; mathematically, E[R_i] = R_f + β_i (E[R_m] − R_f). CAPM assumes investors hold diversified portfolios to eliminate idiosyncratic risk, so only market (systematic) risk—measured by beta—commands a premium. While useful for estimating cost of equity, asset pricing, and portfolio performance evaluation, CAPM rests on simplifying assumptions (single-period horizon, frictionless markets, normal investor behavior, and homogeneous expectations) that limit its empirical accuracy; practical applications often adjust or supplement CAPM with multi-factor models to capture additional sources of risk.