Securities Trader Representative (Series 57) Practice Exam

The capital asset pricing model (CAPM) is primarily used to determine the expected return on an asset based on its systematic risk, which is represented by beta. CAPM establishes a relationship between the expected return of an asset and the risk-free rate of return, along with the expected market return. The model formula integrates these elements, allowing investors to assess whether the potential return on an investment compensates for its associated risk.

This functionality is crucial for investors seeking to make informed decisions about where to allocate their resources. By understanding the expected return in relation to market volatility, investors can better align their risk tolerance with potential returns.

The other options do not align with the main purpose of CAPM. Calculating intrinsic value pertains more to valuation methods that consider factors like fundamentals, while evaluating past market performances relates to historical analysis, not future expectations. Assessing liquidity focuses on how easily an asset can be bought or sold in the market without affecting its price, which is outside the scope of CAPM's risk-return relationship framework.