What is the expected outcome of applying the CAPM in evaluating investment opportunities?

Applying the Capital Asset Pricing Model (CAPM) is primarily focused on estimating the expected returns of an investment based on its systematic risk, measured by beta. The fundamental purpose of the CAPM is to establish a relationship between the expected return of an asset and its risk relative to the overall market. This model helps investors determine what return they should expect for taking on additional risk compared to a risk-free asset.

By using the CAPM, an investor can assess whether an investment offers a potentially acceptable return for its risk level. If the expected return calculated using the CAPM is higher than the required return based on the investor's risk tolerance, the investment may be considered worthwhile. Therefore, the expected outcome of applying the CAPM is to derive an estimate of expected returns that aligns with the perceived risk, allowing for more informed investment decisions.