2.5.1
 CAPM basics
A widelyused valuation model, known as the Capital
Asset Pricing Model, seeks to value financial assets
by linking an asset's return and its risk. Armed with
two inputs  the market's overall expected return and
an asset's risk compared to the overall market  the
CAPM predicts the asset's expected return and thus a
discount rate to determine price! (More
2.5.1>>)
2.5.2  Theoretical basis of CAPM
Valuation of assets, like any art, has its techniques.
And the techniques all have hidden secrets, sometimes
skeletons in the closet. The CAPM is a case in point.
To appreciate the CAPM's pitfalls, it is important to
know how the model is derived. In particular, CAPM assumes
that investors desire more return/less risk, that an
"optimal" portfolio is one with the best return/risk
mix, that it is possible to remix an "optimal"
portfolio with riskfree assets, and that this produces
a "capital market line." (More
2.5.2>>)
2.5.3  Critique of CAPM
 Critical assumptions of CAPM
 Empirical tests of CAPM
 Readings on CAPM
CAPM is not without controversy. It rests on some critical
(and questionable) assumptions. And empirical tests
do not confirm it entirely. A It nonetheless has had
signficant staying power and there is a wide body of
literature that slices and dices it. (More
2.5.3>>)
