CAPM Calculator

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Walk-through

How to Use This Calculator

3 steps

1

Enter the risk-free rate, beta, and market return

Enter matching annual risk-free and market-return assumptions, or choose direct ERP input. Beta measures systematic market exposure, not total volatility. No live data or forecast is supplied.

2

Read the expected return

The hero result shows the CAPM expected return, E(R) = Rf + β(Rm − Rf). The stat grid breaks the answer into its three components: the risk-free rate, the market return, and the market risk premium (Rm − Rf).

3

Solve for beta or the risk premium instead

Switch to Solve Beta to back out the implied beta from a target expected return, or to Risk Premium to isolate the market risk premium (Rm − Rf) on its own — useful when you already know the premium a market is pricing in and want to work the formula in the other direction.

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Reference

Formula & Methodology

3 formulas

CAPM expected return

E(R) = Rf + β(Rm − Rf) = Rf + β × ERP

CAPM models annual required return Rf+β(Rm−Rf). Use consistent currency, horizon and nominal/real assumptions. It neither estimates beta nor promises realized performance; positive beta need not raise return when the premium is negative. Beta is a regression exposure to systematic market risk, not total volatility or an exact path. Zero and negative beta are valid. Match the benchmark, source period, currency and rate basis.

Solving for beta

β = (E(R) − Rf) / (Rm − Rf)

The market premium is zero and the target equals the risk-free rate. Every beta satisfies the equation; there is no unique beta. The market premium is zero and the target differs from the risk-free rate. No beta satisfies the equation.

Market (equity) risk premium

Risk Premium = Rm − Rf

ERP=Rm−Rf is an annual percentage-point difference. Direct ERP entry uses E(R)=Rf+β×ERP. Assumptions must share currency, horizon and nominal or real basis; no historical average or live premium is supplied.

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YMYL

Trust, Methodology & Sources

Reviewed by Calculover Editorial Review · Updated 2026-08-11 · 2 sources

Editorial accountability

Author: Quinn Sumner - Editor

Owner: Quinn Sumner - Editorial owner

Reviewer: Calculover Editorial Review - Source and limitation review

Last reviewed: 2026-08-11

Last verified: 2026-08-11

Data effective: 2026-08-11

Methodology

Uses the CAPM relationship and its beta/premium rearrangements with finite floating-point arithmetic. Direct ERP entry avoids reconstructing a tiny premium by subtracting two large rates. Inputs and context are user assumptions; no live rates, beta estimation or performance forecast is provided.

Assumption: CAPM assumes a single-factor risk model in which beta fully captures an asset's priced (systematic) risk; it does not model size, value, momentum, or other multi-factor return drivers.

Assumption: The risk-free rate, beta, and market return are all taken as user-entered inputs. The calculator does not fetch live Treasury yields, estimate beta from historical price data, or forecast future market returns.

Assumption: CAPM assumes markets are informationally efficient and that investors hold diversified portfolios, so only systematic risk is priced.

Limitations & guidance

CAPM expected return is a theoretical estimate, not a guarantee or prediction of actual future performance.

The model does not account for company-specific (unsystematic) risk, liquidity constraints, taxes, or transaction costs.

The market premium is zero and the target equals the risk-free rate. Every beta satisfies the equation; there is no unique beta. The market premium is zero and the target differs from the risk-free rate. No beta satisfies the equation.

Beta estimates in practice vary by data source, lookback period, and estimation method; using a different beta will change the result.

Professional guidance: This calculator is an educational tool that illustrates the CAPM formula and does not constitute investment advice, a financial recommendation, or a solicitation to buy or sell any security. Consult a licensed financial advisor or Chartered Financial Analyst (CFA) before making investment decisions.

Primary sources

Sharpe, W.F. (1964). Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk. The Journal of Finance.

Aswath Damodaran — The Cost of Capital: The Swiss Army Knife of Finance (April 2016)

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Glossary

Key Terms Explained

7 terms

CAPM (Capital Asset Pricing Model) A model that relates an asset's expected return to its systematic risk (beta), the risk-free rate, and the market risk premium: E(R) = Rf + β(Rm − Rf).

Expected return The return an investor should require for holding an asset, given its risk relative to the market, under CAPM.

Risk-free rate (Rf) The theoretical return on an investment with zero risk of default, typically proxied by the yield on a government bond such as the 10-year US Treasury.

Beta (β) Beta is a regression exposure to systematic market risk, not total volatility or an exact path. Zero and negative beta are valid. Match the benchmark, source period, currency and rate basis.

Market return (Rm) The expected or historical return of the overall market portfolio, commonly proxied by a broad index such as the S&P 500.

Risk premium The market risk premium, Rm − Rf, is the extra return investors require for taking on market risk instead of holding a risk-free asset.

Systematic risk Risk that affects the entire market and cannot be diversified away — the type of risk that beta measures and that CAPM compensates investors for bearing.

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Scenarios

Real-World Examples

3 worked examples

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Equity analyst

Market-average-risk stock

Risk-Free Rate 3% Beta 1.2 Expected Market Return 10%

E(R) = 3% + 1.2 × (10% − 3%) = 11.4%. Because beta is above 1, the stock is expected to earn more than the market's 10% return, reflecting its higher sensitivity to market swings.

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Growth investor

High-beta growth stock

Risk-Free Rate 4% Beta 2.0 Expected Market Return 9%

E(R) = 4% + 2.0 × (9% − 4%) = 14%. A beta of 2.0 doubles the market risk premium's effect, so the required return is much higher than the market's 9% — compensation for the stock's greater systematic risk.

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Portfolio manager backing out risk

Solve for beta from a target return

Risk-Free Rate 3% Expected Market Return 10% Target Expected Return 11.4%

β = (11.4% − 3%) / (10% − 3%) = 1.2. A target return of 11.4% under these market conditions implies the asset must carry a beta of 1.2 — useful for checking whether a proposed return target is consistent with a reasonable risk level.

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Reference

Cite This Calculator

APA & MLA

Use either format to cite this calculator in a paper, report, or resource list.

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Deep Dive

Understanding the CAPM Calculator

3 chapters · 3 min read

The Capital Asset Pricing Model (CAPM) is one of the most widely used tools in finance for estimating the return an investor should require from an asset, given its risk relative to the overall market. This calculator computes the CAPM expected return, solves for the implied beta from a target return, and isolates the market risk premium — the three directions the same formula can be worked in.

How the CAPM Calculator works

CAPM models annual required return Rf+β(Rm−Rf). Use consistent currency, horizon and nominal/real assumptions. It neither estimates beta nor promises realized performance; positive beta need not raise return when the premium is negative.

The market premium is zero and the target equals the risk-free rate. Every beta satisfies the equation; there is no unique beta. The market premium is zero and the target differs from the risk-free rate. No beta satisfies the equation.

Inputs and what they mean

ERP=Rm−Rf is an annual percentage-point difference. Direct ERP entry uses E(R)=Rf+β×ERP. Assumptions must share currency, horizon and nominal or real basis; no historical average or live premium is supplied.

Currency, return horizon, nominal/real basis and beta source/estimation period are metadata only. Scenario pairs hold that context and the active risk-free rate fixed; they change beta and ERP without ranking assets.

The security market line maps beta to modeled required return. Inspect beta by pointer or exact entry, then explicitly Apply to solve Required Return. An independent expected-return point shows a signed assumption gap, not a trading signal.

Inputs stay in local storage, not passive public URL writes. Share first previews active inputs; context and comparisons need separate inclusion. Copy and CSV contain financial results. Anyone with a reviewed link can read its values.

Limits and edge cases

The market premium is zero and the target equals the risk-free rate. Every beta satisfies the equation; there is no unique beta. The market premium is zero and the target differs from the risk-free rate. No beta satisfies the equation.

Beta is a regression exposure to systematic market risk, not total volatility or an exact path. Zero and negative beta are valid. Match the benchmark, source period, currency and rate basis.

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Questions

Frequently Asked Questions

6 questions

What is the CAPM formula?+

E(R) = Rf + β(Rm − Rf), where Rf is the risk-free rate, β is the asset's beta, and Rm is the expected market return. (Rm − Rf) is the market risk premium.

What is beta?+

Beta is a regression exposure to systematic market risk, not total volatility or an exact path. Zero and negative beta are valid. Match the benchmark, source period, currency and rate basis.

What is the risk premium?+

The market (or equity) risk premium is Rm − Rf — the extra return investors expect for holding the market portfolio instead of a risk-free asset like a government bond.

What does it mean if beta is greater than 1?+

CAPM models annual required return Rf+β(Rm−Rf). Use consistent currency, horizon and nominal/real assumptions. It neither estimates beta nor promises realized performance; positive beta need not raise return when the premium is negative.

What units does this calculator use?+

Returns and premiums are annual percentages; beta is unitless and may be zero or negative. The beta×ERP contribution and independent expected-minus-model difference are percentage points.

What is CAPM used for?+

CAPM is most commonly used to estimate the cost of equity — the return shareholders require — which feeds into a company's Weighted Average Cost of Capital (WACC) and, in turn, discounted cash flow valuations and investment decisions.

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Advanced context and scenarios

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How to Use This Calculator

Enter the risk-free rate, beta, and market return

Read the expected return

Solve for beta or the risk premium instead

Formula & Methodology

Trust, Methodology & Sources

Key Terms Explained

Real-World Examples

Equity analyst

Growth investor

Portfolio manager backing out risk

Cite This Calculator

Understanding the CAPM Calculator

How the CAPM Calculator works

Inputs and what they mean

Limits and edge cases

Frequently Asked Questions

Get a branded PDF of your results

CAPM Calculator

Expected Return Inputs

Solve Beta Inputs

Risk Premium Inputs

Security market line

Advanced context and scenarios

Beta and market-premium scenarios

How to Use This Calculator

Enter the risk-free rate, beta, and market return

Read the expected return

Solve for beta or the risk premium instead

Formula & Methodology

Trust, Methodology & Sources

Key Terms Explained

Real-World Examples

Cite This Calculator

Understanding the CAPM Calculator

How the CAPM Calculator works

Inputs and what they mean

Limits and edge cases

Frequently Asked Questions

Get a branded PDF of your results

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Guides & articles

Glossary terms