CAPM Calculator

CAPM adds a beta-scaled market risk premium to the risk-free rate: with Rf = 4 %, β = 1.2 and a 10 % market return, the expected return is 11.2 %.

Risk-free rate Rf:

Beta β:

Expected market return E(Rm):

Expected return E(Ri) =

11.2 %

Precision

Market risk premium: 6 %
Asset risk premium β × (Rm − Rf): 7.2 %

Step-by-step solution

E(Ri) = Rf + β × [E(Rm) − Rf]
E(Ri) = 4 % + 1.2 × (10 % − 4 %)
E(Ri) = 4 % + 7.2 % = 11.2 %

CAPM Formula

E(Ri) = Rf + βi [E(Rm) − Rf]

Rf risk-free rate, βi beta, E(Rm) expected market return

Worked Example

A stock with β = 1.2, a 4 % risk-free rate and a 10 % expected market return:

E(Ri) = Rf + β × [E(Rm) − Rf]
E(Ri) = 4 % + 1.2 × (10 % − 4 %)
E(Ri) = 4 % + 7.2 % = 11.2 %

Asset risk premium β × (Rm − Rf): 7.2 %

Inputs for the CAPM

The CAPM gives the return investors require for an asset’s market risk: E(Ri) = Rf + β(Rm − Rf). The risk-free rate is usually a government bond yield matching the investment horizon, beta comes from regressing the asset’s returns on the market’s, and the market risk premium is typically estimated at 4–6 %. A beta above 1 means the asset moves more than the market. CAPM is widely used for the cost of equity, but it captures only market risk.

Frequently asked questions

What does beta mean?

Beta measures how much a stock moves with the market: β = 1 moves with it, β > 1 is more volatile, β < 1 less. It is the covariance of the stock with the market divided by the market variance.

What is the market risk premium?

E(Rm) − Rf, the extra return investors expect for holding the market instead of a risk-free asset. Here 10 % − 4 % = 6 %.

Is the CAPM return the cost of equity?

Yes, CAPM is the most common way to estimate the cost of equity used in WACC and in discounting cash flows to equity.

Sources

Last reviewed: 2026-10-15. Factors are stored exactly and computed with 50-digit decimal arithmetic. See how we verify conversion factors.

Cite this page

APA

Scientific Converters. (2026, October 15). CAPM Calculator. Retrieved October 25, 2026, from https://scientificconverters.com/calculators/capm-calculator/

IEEE

Scientific Converters, "CAPM Calculator," scientificconverters.com. Accessed: Oct. 25, 2026. [Online]. Available: https://scientificconverters.com/calculators/capm-calculator/