What does the Capital Asset Pricing Model (CAPM) help to calculate?

The Capital Asset Pricing Model (CAPM) is a financial model used to determine the expected return on an investment, and it specifically focuses on calculating the cost of equity. This model calculates the required return for an equity investment based on its systematic risk, represented by beta, and the expected return of the market.

By using CAPM, investors can assess the relationship between the expected return of an asset and its risk compared to the market as a whole. The formula incorporates the risk-free rate, the market return, and the asset's beta, which measures the sensitivity of the asset's returns to the overall market returns.

This makes CAPM a crucial tool for investors and financial analysts when determining the appropriate discount rate for equity investments and making informed investment decisions.

The other options, while related to finance, do not directly pertain to CAPM. Expected market growth is a broad economic measure rather than something CAPM aims to quantify. Debt yield refers to returns on debt instruments and is not relevant in the context of equity valuation. Company valuation encompasses many methods and metrics, but CAPM specifically addresses the cost of equity, which is only one component of a thorough valuation.