Moonn is evaluating the expected performance of two common stocks, Harvard, Inc. and Yale, Inc. She has gathered the following information. However, Moonn was not sure which model would be appropriate to value these stocks.

Caleb tells Moonn that she should use the Capital Asset Pricing $($CAPM$)/$security market line equation to determine the performance of Harvard, Inc. and Yale, Inc and made the following statement regarding CAPM:

The CAPM is an equation for required return that should hold in equilibrium $($the condition in which supply equals demand$)$ if the model$$s assumptions are met; among the key assumptions are that investors are risk averse and that they make investment decisions based on the mean return and variance of returns of their total portfolio. The chief insight of the model is that investors evaluate the risk of an asset in terms of the asset$$s contribution to the systematic risk of their total portfolio $($systematic risk is risk that cannot be shed by portfolio diversification$).$ Because the CAPM provides an economically grounded and relatively objective procedure for required return estimation, it has been widely used in valuation.