▁market . ▁Therefore , ▁when ▁the ▁expected ▁rate ▁of ▁return ▁for ▁any ▁security ▁is ▁def l ated ▁by ▁its ▁beta ▁coefficient , ▁the ▁reward - to - ris k ▁ratio ▁for ▁any ▁individual ▁security ▁in ▁the ▁market ▁is ▁equal ▁to ▁the ▁market ▁reward - to - ris k ▁ratio , ▁thus : ▁▁▁▁ ▁The ▁market ▁reward - to - ris k ▁ratio ▁is ▁effectively ▁the ▁market ▁risk ▁prem ium ▁and ▁by ▁re arr anging ▁the ▁above ▁equation ▁and ▁solving ▁for ▁, ▁we ▁obtain ▁the ▁capital ▁asset ▁pr icing ▁model ▁( C AP M ). ▁▁▁▁ ▁where : ▁▁ ▁is ▁the ▁expected ▁return ▁on ▁the ▁capital ▁asset ▁▁ ▁is ▁the ▁risk - free ▁rate ▁of ▁interest ▁such ▁as ▁interest ▁ar ising ▁from ▁government ▁b onds ▁▁ ▁( the ▁beta ) ▁is ▁the ▁sens itivity ▁of ▁the ▁expected ▁excess ▁asset ▁returns ▁to ▁the ▁expected ▁excess ▁market ▁returns , ▁or ▁also ▁▁▁ ▁is ▁the ▁expected ▁return ▁of ▁the ▁market ▁▁ ▁is ▁sometimes ▁known ▁as ▁the ▁market ▁prem ium ▁( the ▁difference ▁between ▁the ▁expected ▁market ▁rate ▁of ▁return ▁and ▁the ▁risk - free ▁rate ▁of ▁return ). ▁▁ ▁is ▁also ▁known ▁as ▁the ▁risk ▁prem ium ▁▁ ▁denotes ▁the ▁correlation ▁coefficient ▁between ▁the ▁invest ment ▁ ▁and ▁the ▁market ▁▁▁ ▁is ▁the ▁standard ▁deviation ▁for ▁the ▁invest ment ▁▁▁ ▁is ▁the ▁standard ▁deviation ▁for ▁the ▁market ▁. ▁Rest ated , ▁in ▁terms ▁of ▁risk ▁prem ium , ▁we ▁find ▁that : ▁▁▁▁ ▁which ▁states ▁that ▁the ▁individual ▁risk ▁prem ium ▁equals ▁the ▁market ▁prem ium ▁times