In the context of investments, what primary aspect does CAPM focus on?

The primary aspect that the Capital Asset Pricing Model (CAPM) focuses on is the relationship between risk and expected return. CAPM provides a framework to understand how the risk associated with a specific investment correlates to its potential returns. It posits that investors need to be compensated for both the time value of money and the risk they undertake.

At its core, CAPM introduces the concept of systematic risk, measured by beta, which reflects the volatility of an investment in relation to the market. By using the formula derived from the model, investors can estimate an expected return based on the risk-free rate, the expected market return, and the investment's volatility. This relationship helps investors make informed decisions about which assets to invest in and how to balance their portfolios according to their risk tolerance.

The other options, although relevant in different contexts of finance, do not encapsulate the primary focus of CAPM. Interest rates do play a role in determining returns, but they are not the central tenet of CAPM. Historical performance can inform investment decisions but does not address the risk-return relationship that CAPM directly models. Legal regulations, while important for the overall functioning of markets, are not a focus of CAPM in assessing the expected returns of an investment. Thus