How do investors determine if a potential return is worth the risk? In this episode, we deconstruct the Capital Asset Pricing Model (CAPM), a cornerstone of modern finance used to calculate the theoretically appropriate required rate of return for an asset. We explore how the model separates risk into two categories: "systematic risk" (market risk), which cannot be avoided, and "unsystematic risk," which can be eliminated through diversification.

Key topics covered in this episode:

• The Power of Beta: Understanding how "beta" ($\beta$) measures an asset’s sensitivity to market movements and why high-beta stocks require higher discount rates.
• The Security Market Line (SML): How to visualize risk versus return. We explain why assets plotted above the SML are considered "unde ...