Abstract
Finance textbooks include the Capital Asset Pricing Model (CAPM) as a method to estimate the required return on equity capital. The graphical depiction of the Security Market Line (SML) can be used to examine risk-reward trade-offs for both security analysis and capital investment proposals. In attempts to apply the CAPM in practice, students often confuse the expected return on the market with the market risk premium. This paper provides teaching examples that clarify how changes in the risk-free rate should be made in concert with the market risk premium to avoid the introduction of bias in the resulting investment process.
Recommended Citation
(2026)
"Student Input Confusion and Unintentional Bias: A Note on Teaching the Capital Asset Pricing Model,"
Journal of Economics and Finance Education: Vol. 21:
Iss.
1, Article 7.
Available at:
https://scholarship.rollins.edu/jefe/vol21/iss1/7
