CAPM is a model that describes the relationship between risk and expected return.

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Hello Megan, I concur with you that the CAPM model should be used as a supplemental tool among other financial tools and approaches. According to its strengths, it is easy to use and provides better and useful results that possibly lack in other financial models such as the WACC and DDM models. However, from its weaknesses, the main inputs and assumptions made by investors limit the model’s effectiveness (Zucchi, 2019). In that case, using it among other financial models would result in high-level financial results. When evaluating debt and equity financing, do you think it is better to pay the principles and interests or share business ownership as well as the profits.

Reference

Zucchi, K. (2019). CAPM Model: Advantages and Disadvantages. Retrieved from https://www.investopedia.com/articles/investing/021015/advantages-and-disadvantages-capm-model.asp

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