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CAPM Calculator

Calculate the expected return of an asset using the Capital Asset Pricing Model based on the risk-free rate, market return, and beta.

Yield on risk-free assets such as 10-year U.S. Treasury bonds
Expected annual return of the overall market (e.g. S&P 500)
Sensitivity of the stock to market movements (β = 1 means average market risk)

Results

Expected Return (CAPM)0.00%
Market Risk Premium0.00%
Stock Risk Premium (β × MRP)0.00%

📖What is it?

The Capital Asset Pricing Model (CAPM) calculates the expected return of an investment given its systematic risk (beta). The formula is E(Ri) = Rf + βi × (Rm − Rf). It is the foundational model in modern portfolio theory and is commonly used to estimate the cost of equity in corporate finance.

🎯How to use

Enter the risk-free rate (e.g., 10-year Treasury yield), the expected market return (historical average or forward estimate), and the stock's beta coefficient. The calculator outputs the expected return, the market risk premium, and the stock-specific risk premium.

💡Example scenario

With a risk-free rate of 4.5%, an expected market return of 10%, and a stock beta of 1.2: Expected return = 4.5% + 1.2 × (10% − 4.5%) = 4.5% + 6.6% = 11.1%.

🏆Pro tip

Beta is backward-looking and can change over time. Use a 5-year monthly regression against a broad index for the most stable estimate. CAPM only captures systematic (market) risk — it does not account for size, value, momentum, or other factor premiums.