 Following the development of Markowitz portfolio theory, two other major theories namely the capital asset pricing model theory and the arbitrage pricing theory have also been developed for pricing all the risky assets. Now, before going into CAPEM details, it is necessary to understand its little background. We know that capital market theory extends the portfolio theory and it allows the development of the famous model CAPEM. This CAPEM is used for determining the prices of every risky asset and it allows to determine the required rate of return for any risky asset. This development depends upon the existence of a risk-free asset that leads towards the market portfolio. Now what is market portfolio? The market portfolio is the collection of all risky assets available for trade in the market. This means that asset pricing theory is also based on the risky assets. Now what is a risk-free asset? Basically, a risk-free asset is an asset that has no variance or no riskiness. This means the standard deviation on such asset is equal to zero. A risk-free asset allows market portfolio theory to develop into capital market portfolio. A capital market theory, a risk-free asset has a zero correlation with all other risky assets and it offers risk-free return to the investors. A risk-free asset lies on the vertical axis of a portfolio graph. That means as the risk-free asset has a zero riskiness, so it lies on the vertical. This risk-free asset allows to derive a generalized theory of capital asset pricing under the conditions of uncertainty from the famous portfolio theory. There are certain assumptions behind the capital market theory. The first assumption is the Markowitz efficient investors. This states that the investors want to target on the efficient frontier as per their level of utility functions. The second is the riskless borrowing and lending. The theory assumes that borrowing and lending of amount is possible at the risk-free rate. As in real words, the lending may be possible at the risk-free rate through investment in the government treasury bills, but the borrowing at risk-free rate is not possible. Next is the no taxes or transaction cost on the buying and selling of the assets. Homogeneous expectations. This means that investors estimate identical probability distribution for the future rate of return and that is in line with the riskiness of the skewering. The next is the one-period time horizon. The capital market theory says that all investors have same one-period time horizon. Now this time horizon may be of one month, of six months or one year. Same time horizon would require investors to derive risk mayors according to the time horizon they choose for their investment. Equilibrium capital markets. This means that all assets available in the market are priced inconsistent with their level of riskiness. The third theory is that there is no change in the interest rate or the inflation is highly anticipated. Now after going through all these assumptions we can say that many of these assumptions are unrealistic, they have no existence in the real world market. Relaxing many of these assumptions would have only minor or no effect on the model and the results would not be changed. The second conclusion that we may draw from these assumptions is that a theory should never be judged on the basis of its assumption rather it should be judged whether the theory is able to explain and predict behavior in the real world than its assumptions.