CAPM

The general idea behind CAPM is that investors need to be compensated in two ways: time value of money and risk. 


The time value of money is represented by the risk-free (rf) rate in the formula and compensates the investors for placing money in any investment over a period of time. 


The other half of the formula represents risk and calculates the amount of compensation the investor needs for taking on additional risk. 


This is calculated by taking a risk measure (beta) that compares the returns of the asset to the market over a period of time and to the market premium (Rm-rf).

Read more: http://www.investopedia.com/terms/c/capm.asp#ixzz1iNCnkqAD