Question

What are the strengths of CAPM?

Answer 1

Strength of CAPM:

1. CAPM is an easy and simple to understand model.

2. CAPM has been a widely accepted model by most businesses since no other model was able to characterize risk as successfully as CAPM

3. CAPM uses beta as a measure of risk in its model and beta is widely used for business decisions concerning long-term projects.

4. Since CAPM uses only a single factor to characterize risk, it rules out complexities and provides with a lesser probability of error