7 CAPM - "Priced" Risk All Sections Risk is linked to reward. We've seen that safe assets pay low returns. If you want higher returns you have to risk your capital. Risk and reward are related but don't think the latter is guaranteed. The CAPM is the model that relates expected rates of return to risk. It results in the expected return-beta relationship, where the expected risk premium on any asset is proportional to the expected risk premium on the market portfolio with beta as the proportionality constant. Beta captures the sensitivity of a security to market-wide (systematic) risk factors. In this discussion. I ask you think about CAPM and in your own words explain the following. We routinely assume that investors are risk-averse return-seekers. That is, they like returns and dislike risk. If so, why does CAPM say that only systematic risk is priced and earns a return, whereas nonsystematic risk is not priced? In other words, why do we contend that only systematic risk and not the total risk is important