IntroductionThe Financial Asset Pricing Model (CAPM) is an ex ante concept, which is based on the portfolio theory established by Markowitz (Bhatnagar and Ramlogan 2012). This improves the understanding of the elements of asset prices, particularly the linear relationship between risk and expected return (Perold 2004). The direct correlation between risk and return is well defined by the security market line (SML), where the market risk of an asset is combined with the market return and risk as well as the risk-free rate to estimate the expected return on an asset (Watson and Head 1998 cited in Laubscher 2002). From my point of view, the usefulness of CAPM is oriented towards effective investment decision making and strategic management. Moosa (2013) considers the CAPM as a supporting model for “assessing the performance of managed portfolios and for investment purposes”. Assumptions underlying Sharpe and Lintner's CAPM: 1. “All investors have identical expectations of security rewards and risks2. There are no investment constraints3. There is a single interest rate for risk-free borrowing and lending4. All investors want to maximize the average variance utility functions5. Investors are risk averse6. Market conditions are perfect; no transaction costs, no taxes” (Da, Guo and Jagannathan 2012). The following essay will expand on the usefulness and flaws of the CAPM and other asset valuation frameworks and ultimately show that despite all the evidence against the CAPM, it remains a useful tool. model for determining asset investments. The CAPM is a useful model. According to Perold (2004), "the CAPM can serve as a benchmark for understanding capital market phenomena that cause asset prices and investor behavior to deviate from prescriptions...... middle of paper ... ...factorial models (Bhatnagar and Ramlogan 2012). The two models APT and CAPM should not be considered as alternatives because the CAPM attempts to describe the underlying market relationships, unlike the APT, which provides an explanation of current market conditions (Laubscher 2002). Such valuation tests will improve the understanding of the risk-return relationship and pricing instruments of stock markets. Although Fama and French's three-factor model performs slightly better than the CAPM, this does not indicate that the CAPM is impractical to use (Hibbert and Lawrence 2010). Finally, Welch (2008) established from his research that 75% of finance academics recommend the use of CAPM for business capital budgeting purposes, 10% recommend the French Fama model and only 5% recommend an APT model . Therefore, Sharpe and Lintner's CAPM is a beneficial framework.