The model provides a methodology for quantifying risk and translating that risk into estimates of expected return on equity. A principal advantage of CAPM is the objective nature of the estimated costs of equity that the model can yield.

Why is CAPM a good model?

The model provides a methodology for quantifying risk and translating that risk into estimates of expected return on equity. A principal advantage of CAPM is the objective nature of the estimated costs of equity that the model can yield.

Why is CAPM not a good model?

Another disadvantage in using the CAPM in investment appraisal is that the assumption of a single-period time horizon is at odds with the multi-period nature of investment appraisal. While CAPM variables can be assumed constant in successive future periods, experience indicates that this is not true in the real world.