According to Modern Portfolio Theory, the best investment strategy is to hold only the risk-free asset and the Optimal Risky Portfolio. CAPM builds upon this conclusion and its own assumptions and further conclude that: (This is a multiple-answer question.) The risk premium on an individual asset is determined by its beta and the risk premium on the market portfolio. The equilibrium expected return on a security should be proportional to its market risk, because investors all hold efficiently diversified portfolios. The market portfolio is every investor's Optimal Risky Portfolio and therefore, is held by every investor. The market portfolio includes all securities in the investable universe. All assets in the market portfolio are held in proportion to their market values.