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The Capital Asset Pricing Model (CAPM). A Detailed Introduction

Continuing Learning Series

This article is a part of ACS Continuing Learning Series, which is a series of short articles, published by ACS Consulting at short regular intervals on a variety of subjects related to strategy, corporate finance, financial planning & analysis, business planning and performance management.

Subject: Financial Analysis


  • Anyone who aspires to pursue a career as an investment analyst.

  • Anyone who aspires to pursue a career within corporate finance.

  • Anyone who is generally interested in capital markets and investment appraisals.


Diversification of portfolio is an effective way to manage risk exposure. However, all risk cannot be eliminated and no matter how much one diversifies (investment portfolio) some level of risk will always exist.

All investors seek a rate of return that compensates for the level of risk which they perceive to be taking. The capital asset pricing model (CAPM) helps to calculate investment risk and the return on an investment that investors should/would expect to earn.

Understanding Systematic Risk and Unsystematic Risk