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Question 14 Why do we use Capital Asset Pricing Model (CAPM)? because it is impractical to account for the correlations of th
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The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.

So here, the third option is the most absolute one. Capital asset pricing model is used because the relevant risk of an investment is determined by how it contributes to the risk of this individual portfolio.

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