Why is the capital asset pricing model (CAPM) significant in finance?

The capital asset pricing model (CAPM) is significant in finance primarily because it helps investors estimate the expected returns on securities based on their systematic risk, which is the risk associated with the market as a whole that cannot be eliminated through diversification. CAPM establishes a linear relationship between the expected return of an asset and its risk as measured by beta, which reflects the asset's volatility relative to the overall market.

By using this model, investors can assess whether a potential investment will yield an adequate return compared to its inherent risk. This relationship is crucial for making informed decisions about portfolio management and investment strategies, as it guides investors on how much return they should expect for taking on certain levels of risk associated with market fluctuations.

The other options, while they touch on important concepts in finance, do not correctly represent the primary purpose or significance of CAPM. Calculating corporate tax rates, determining intrinsic asset value, or measuring liquidity risks are important financial tasks but do not directly relate to the CAPM's role in assessing expected returns based on risk.