An important task of the corporate financial manager is measurement of the companys cost of equity

capital. But estimating the cost of equity causes a lot of efforts and time. The capital asset pricing model
(CAPM) is an idealized portrayal of how financial markets price securities and thereby determine
expected returns on capital investments. The model provides a methodology for quantifying risk and
translating that risk into estimates of expected return on equity. A principal advantage of CAPM is the
objective nature of the estimated costs of equity that the model can yield. CAPM, a theoretical
representation of the behavior of financial markets, can be employed in estimating a companys cost of
equity capital.

Capital Asset Pricing Model (CAPM), it was seen as aleading tool in measuring if an investment will yield
in positive or negative returns. It attempts to explain therelationship between investment risk and
expected reward of risky securities