The Capital Asset Pricing Model (CAPM) is a financial formula used to determine the expected return on an investment based on its risk compared to the overall market. It helps investors understand how much return they should expect for taking on additional risk. The model considers the risk-free rate, the expected market return, and the investment's beta, which measures its volatility relative to the market. CAPM is widely used in finance for portfolio management and asset valuation. By providing a systematic way to assess risk and return, it aids investors in making informed decisions about where to allocate their resources.