# CAPM as pricing formula

P - price that the asset was purchased. Q - price that it was sold

P = Q/(1+r+B(R_m - r))

What is the financial meaning of denominator.

Thanks for help.

The CAPM states that the expected return of an asset i is related to the expected market return by $$\mathbb{E}[R_i] = r_f + \beta_i (\mathbb{E}[R_M] - r_f)$$

If the CAPM is a correct description of risk and return, then the next period price Q should be given by

$$Q = P (1+r_f + \beta_i (\mathbb{E}[R_M] - r_f))$$

In your formulation, the denominator is the factor by which the asset's price should apprecitate over the period of observation.