!URL http://www.duke.edu/~charvey/Classes/ba350_1997/capm/capm.htm !Description his class extends the diversification material in deriving the Capital Asset Pricing Model (CAPM). This model is widely used in capital budgeting exercises in practice and is one of the cornerstones of modern finance. The primary use of the CAPM is in determining the appropriate discount rate to use in computing Net Present Values (NPVs). This module, highlights the difference between systematic risk (which is priced or rewarded by investors) and diversifiable risk (which is not awarded). An intuitive proof is presented along with a formal mathematical proof.