Answer: Estimating expected returns over multiple periods

## Explanation The CAPM (Capital Asset Pricing Model) is primarily used for estimating expected returns over multiple periods. Here's why: **CAPM Application:** - **Option A (Correct):** CAPM is specifically designed to estimate expected returns for assets over multiple periods based on their systematic risk (beta). The model provides a theoretical framework for determining the required rate of return for an asset given its risk relative to the market. **Why other options are incorrect:** - **Option B:** Assessing return performance against a benchmark is typically done using performance measurement metrics like Jensen's alpha, Sharpe ratio, or tracking error, not specifically the CAPM itself. - **Option C:** Estimating expected returns using multiple investment factors is the domain of multi-factor models like the Fama-French three-factor model or other APT (Arbitrage Pricing Theory) models, not the single-factor CAPM. **Key CAPM Formula:** ``` E(Ri) = Rf + βi × [E(Rm) - Rf] ``` Where: - E(Ri) = Expected return on asset i - Rf = Risk-free rate - βi = Beta of asset i (systematic risk) - E(Rm) = Expected market return - [E(Rm) - Rf] = Market risk premium The CAPM's primary application is to estimate the required return for an asset given its systematic risk, which inherently involves considering returns over multiple periods rather than a single period.

Author: LeetQuiz .