Capital Asset Pricing Model (CAPM).

An economic model describing the relationship between expected risk and expected return for financial assets. At its simplest, it takes the form of a linear relationship: Rj = rf + ßj (Rm - rf) where Rj is the expected return of a security ßj is the beta of the security and Rm is the expected return of "the market", e.g. the stock market rf is the return on riskless assets. It is based on the idea that investors demand additional expected return (called the risk premium) if asked to accept additional risk.