Capital Asset Pricing Model (CAPM) Calculator

Estimate expected return using the CAPM formula. Enter beta, risk-free rate, and either market return or equity risk premium to see results and a clear

CAPM Calculator (Capital Asset Pricing Model)

Estimate the expected return on equity using CAPM: Re = Rf + Beta × (Rm – Rf). Enter either the market return (Rm) or the market risk premium directly.

Market ReturnRisk Premium
%

Typically a government bond yield (e.g., 10-year).

Sensitivity of the asset to market movements (market beta = 1).

%

Long-run expected return of a broad market (e.g., 7%–10%).

%

Excess market return over the risk-free rate.

Results

  • Expected Return (Re)— %
  • Risk-free Rate (Rf)— %
  • Market Risk Premium (Rm – Rf)— %
  • Risk Premium Contribution (β × Premium)— %

Enter your inputs above to calculate the results.

Formula

Re = Rf + × (Rm − Rf)Equivalent formRe = Rf + × Premium


Where Rf = risk-free rate, Rm = expected market return, Premium = equity risk premium (Rm − Rf), β = asset beta.

Inputs

  • Risk-free rate (Rf)

  • Beta (β)

  • Choose one:

    • Expected market return (Rm), or

    • Equity risk premium (Premium = Rm − Rf)

Outputs

  • Expected return (Re)

  • Risk-free rate (Rf)

  • Market risk premium (Rm − Rf) or entered Premium

  • Risk premium contribution: × Premium

  • Visual return breakdown

CAPM Calculator — Inputs & Output Guide
Field What it is / How to use Where to get it Typical range* Impact on result
Risk-free rate (Rf) Yield on a default-free bond in the same currency and time horizon as your expected return (usually 10-year government bond). Central bank / Treasury site, investing data portals. Developed markets ~1–6% (historically 0–8%). +1% to Rf → +1% to expected return, one-for-one.
Beta (β) Sensitivity of the asset to the market (use levered beta for equity). If unsure, use sector beta as a proxy. Finance sites (Yahoo/Reuters), company filings, your regression. Most stocks ~0.5–1.8 (can be <0 or >2). Higher β amplifies the market risk premium effect.
Market return (Rm) Expected broad-market total return (price + dividends). Use forward estimate or long-run average. Equity risk premium studies, index providers, your model. Often ~6–10%/year (US long-run). Increases expected return via (Rm − Rf).
Market risk premium (MRP) Shortcut input if you don’t have Rm: MRP = (Rm − Rf). Use one of: either Rm or MRP, not both. Damodaran/ERP reports, house view. Developed markets ~3–7%. Bigger MRP → higher expected return.
Currency & period Match currency and compounding across Rf, Rm/MRP, and output (e.g., all annual, same currency). Your calculator settings. Annual, local currency (common). Mismatches distort results; keep consistent.
(Optional) Adjustment Size/liquidity/country add-on or alpha. Keep 0 for “pure” CAPM. Analyst judgment / policy. −2% to +2% (typical). Shifts result directly, +/− the add-on.
Expected return (Re) Output: required equity return. Plain-text formula: Re = Rf + β × (Rm − Rf) or Re = Rf + β × MRP. Calculated by the tool. Varies by inputs. Use as cost of equity (feed into WACC if needed).
*Ranges are indicative, not guarantees. Keep inputs consistent: same currency, same horizon, same compounding basis.

How to Use the CAPM Calculator

Follow these steps to calculate expected return (Re) with market return or directly with the market risk premium.

Choose the input mode

Select Market Return if you have the expected market return (Rm) and the risk-free rate (Rf). Choose Risk Premium if you already know the market risk premium (Rm − Rf). Don’t mix modes—enter values only for the fields shown for your selection.

Enter the risk-free rate (Rf)

Type the current government bond yield (e.g., a 3–10 year Treasury) that matches your return horizon. Enter as a percent number, e.g., 2.5 for 2.5%. Keep period consistency (annual Rf with annual Rm/premium). Avoid entering 0.025 or using commas—use 2.5, not 2,5.

Set the equity beta (β)

Input the stock or portfolio beta (unitless), typically found on broker research pages or finance sites. Use a plain number like 1.2; values below 0 or far above 2 may indicate a niche or data issue. Don’t paste a percentage—beta is not a %.

Enter expected market return (Rm) or premium

If in Market Return mode, type the market’s expected annual return (e.g., 8). If in Risk Premium mode, type the market risk premium directly (e.g., 5.5). Ensure the figure is in percent terms and aligned with Rf’s period; don’t mix arithmetic means with monthly inputs.

Review results and breakdown

The calculator shows Expected Return (Re), Risk-free Rate (Rf), Market Risk Premium (Rm − Rf), and β × Premium. Use Show decimals if you need more precision for reporting or rounding checks. Compare Re to your hurdle rate or WACC inputs when using CalcMastery in budgeting or valuation.

Frequently Asked Questions

What does this CAPM calculator do?

It computes an asset’s expected return using the Capital Asset Pricing Model: expected return = risk-free rate + beta × (market return − risk-free rate). You can enter either the market return or the market risk premium directly.

What’s the difference between “Market Return” and “Risk Premium” input modes?

In “Market Return,” you provide the market’s expected total return and the tool derives the premium as (market return − risk-free rate). In “Risk Premium,” you provide the premium itself. Both modes use the same formula: expected return = risk-free rate + beta × premium.

Can you show a quick example?

Yes. With risk-free rate = 2%, market return = 8%, and beta = 1, the premium is 6%, so expected return = 2% + 1 × 6% = 8%.

How are unusual inputs handled (e.g., beta = 0, negative beta, or premium)?

Beta is treated as a real number: beta = 0 yields expected return = risk-free rate; beta < 0 inverts exposure so the premium subtracts from the risk-free rate; a negative premium (bearish expectations) reduces expected return. No caps or floors are applied; the result can be below the risk-free rate.

How are units, rounding, and display managed?

Inputs/outputs are percentages (e.g., enter 2 for 2%). Internally, calculations use decimal fractions (0.02) and results are rounded with round-half-even (“banker’s rounding”). Display precision is applied only at the end; intermediate steps keep full precision.

The tool evaluates the single-factor CAPM in plain text form: expected return = risk-free rate + beta × (market return − risk-free rate). In “Risk Premium” mode, the provided premium replaces the parenthetical term. All rates are interpreted as annual percentage rates; internally they are converted to decimal fractions for computation and converted back to percentages for display. Rounding follows NIST SP 811 round-half-even and occurs only on the final displayed values to avoid compounding rounding error. Beta is dimensionless and may be any real value; no constraints are imposed, so negative or zero beta and negative premiums are computed as entered. If any required input is missing or non-numeric, no result is produced.

Sources & Methodology