Securities Trader Representative (Series 57) Practice Exam

The primary goal of using the Capital Asset Pricing Model (CAPM) is to measure an asset's expected return. CAPM establishes a linear relationship between the expected return of an investment and its systemic risk, represented by beta. Investors use this model to determine a theoretically appropriate required rate of return based on the asset's risk compared to the overall market. By calculating expected returns, investors can make informed decisions regarding portfolio management, investment evaluations, and understanding the trade-off between risk and return.

Other options do not align with the fundamental purpose of CAPM. Setting a stock's price involves various valuation methods rather than a focus on return for given risk. Predicting future earnings is more about analyzing a company’s financials and market conditions, and while CAPM considers risk, it does not directly forecast earnings. Competitor analysis centers around assessing other firms within the industry and is unrelated to the risk-return trade-off that CAPM seeks to clarify.