Define "capital asset pricing model" (CAPM).

The capital asset pricing model (CAPM) is a financial model that establishes a relationship between an asset's expected return and its systematic risk, which is measured by beta. CAPM provides a formula to calculate the expected return on an investment based on the risk-free rate of return, the expected market return, and the asset's sensitivity to market movements.

This model underlines the principle that investors require higher expected returns for taking on more risk. The beta coefficient reflects how much the investment's returns are expected to change in relation to changes in the market. By using this relationship, CAPM assists investors in making informed decisions about asset pricing and portfolio management.

Other choices, such as methods for evaluating market trends or predicting market crashes, do not capture the essence of CAPM's specific focus on risk-return trade-offs. Similarly, evaluating corporate financial health is not the primary purpose of CAPM, which is more concerned with the relationship between risk and expected returns. Thus, the definition that best aligns with CAPM is that it explains the relationship between expected return and systematic risk.