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CAPM and its significance Introduction In almost every economics textbooks (Ben and Robert, 2001), economists tend to argue: everything's market price is determined by consumers' demand and supply in the market, the intersection of which gives us the long-term concept of 'market equilibrium'. Although it sounds straightforward, it is anything but easy in practice, especially when the assets (like common stock) you are measuring associated with risk and future uncertainties. Fortunately, economists and financial analysts have developed plenty of theories to help us explain how the risk for market assets can be appropriately measured in our life. Capital Asset Pricing Model ('CAPM') is one of the most influential and applicable models, which give good explanations and predictions of 'market price for risk'. This essay is going to look at what the CAPM really is, how it is derived and used, and will also see some limitations of applying it in practice. Assumptions First of...

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