What is the significance of the Capital Asset Pricing Model (CAPM) in Phase 9?

The Capital Asset Pricing Model (CAPM) is significant in Phase 9 as it offers a crucial framework for understanding the relationship between risk and expected return in investment decision-making. By establishing a linear relationship, CAPM helps investors determine the expected return of an asset based on its systematic risk, as measured by beta. This understanding allows for informed investment choices, as investors can assess whether the potential returns justify the risks associated with a particular asset.

In essence, CAPM connects the risk-free rate, the expected market return, and the inherent risk of an individual security, enabling analysts to gauge investment opportunities against their risk profiles. This framework is essential for portfolio management and optimization, making it a foundational concept in finance. The other options do not align with the core function of CAPM in understanding risk and returns in investment contexts.