CAPM Calculator

How to use the CAPM Calculator

1. 1Enter the risk-free rate, beta and market return.
2. 2Pick the units or options from the menus if the CAPM expected return tool offers them.
3. 3Read the CAPM expected return in the large result box.
4. 4Look at the extra rows for related figures.
5. 5Press Copy result to keep the answer.

When you need the CAPM expected return

Finance students and analysts use it to price shares and to find the cost of equity for company valuation.

A beta of 1 means the share moves with the market. A beta above 1 means bigger swings and a higher required return, while a beta below 1 means a calmer share.

How the CAPM expected return is worked out

Expected return = risk-free rate + beta × (market return − risk-free rate). The bracket is the market risk premium. With a risk-free rate of 3%, a beta of 1.2 and a market return of 8%, the premium is 5%, and the expected return is 3% + 1.2 × 5% = 9%.

Every answer on this page comes from that one rule, so you can check any result by hand with a calculator. The figures shown underneath, such as other units, are conversions of the same answer.

• Market risk premium shown
• Beta premium shown
• Works with negative betas

Mistakes to avoid with CAPM expected return

CAPM is a model and not a forecast. The market return is an expectation, not a fact, and beta is taken from past data. Use the risk-free rate from a government bond with a similar life.

On phone and computer

On a phone, type into the boxes one after another and read the CAPM expected return underneath; Copy result puts it on the clipboard for a message or a note. On a computer the inputs sit on the left and the answer on the right, so you can change one figure and watch the CAPM expected return move. The capm calculator works the same on both.

Checking your CAPM expected return by hand

A good habit is to test the capm calculator with a case you already know. With a risk-free rate of 3%, a beta of 1.2 and a market return of 8%, the premium is 5%, and the expected return is 3% + 1.2 × 5% = 9%.

If your own figures give a surprising answer, repeat the working yourself: Expected return = risk-free rate + beta × (market return − risk-free rate). The bracket is the market risk premium. Small differences usually come from rounding, from mixing units, or from a typing slip in one of the inputs. The expected return from CAPM often feeds other finance decisions. Use it in the WACC Calculator to blend the cost of equity with debt, compare actual results with the Return on Equity Calculator, and check a project with the ROI Calculator.

Features

• CAPM is a model, not a forecast
• Beta comes from past data
• Use matching bond maturity
• Clear messages when the CAPM expected return inputs make no sense
• Copy the result with one tap
• Private: nothing is uploaded

Frequently asked questions