$1.$ Capital Asset Pricing Model $($CAPM$)$: CAPM helps investors understand the relationship between the expected return on an investment and its associated risk. CAPM calculates the expected return based on the risk$-$free rate, the asset$$s beta $($which measures its sensitivity to market movements$),$ and the market risk premium. For managers, CAPM is essential in deciding which projects to pursue based on whether the expected return meets or exceeds the required return, considering the risk involved. For investors, CAPM provides a benchmark for assessing whether an investment offers adequate compensation for the level of risk taken.

$2.$ Risk Premiums: A risk premium is the additional return an investor expects to receive for taking on higher risk, compared to a risk$-$free asset. Investors consider the risk premium to determine whether the potential return justifies the investment risk. Managers use risk premiums to ensure that their business strategies align with shareholders$$ expectations for compensation for risks, especially when entering volatile markets or making uncertain investments. Without adequately considering risk premiums, a firm might take on projects that don$$t provide sufficient return for their risk level, leading to suboptimal financial performance.

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