A Graphical Approach to Teaching the Capital Asset Pricing Model (CAPM) in Introductory Finance Courses

Authors

Abstract

The relationship between risk and return is necessarily an important aspect of introductory finance courses. The Capital Asset Pricing Model (CAPM) is generally taught as the cornerstone model for measuring expected return given systematic risk as measured by beta, the market’s risk-free rate, and the market risk premium. In this paper, I demonstrate a graphical method of building up to, and introducing, the concept of the CAPM. Students generally find this method to be intuitive and helpful in understanding the concepts of correlation, diversification, efficient frontier, risk vs return, and CAPM.

Recommended Citation

(2026) "A Graphical Approach to Teaching the Capital Asset Pricing Model (CAPM) in Introductory Finance Courses," Journal of Economics and Finance Education: Vol. 15: Iss. 2, Article 2.
Available at: https://scholarship.rollins.edu/jefe/vol15/iss2/2