CAPM Calculator
Use the Capital Asset Pricing Model to estimate an asset's expected return.
The Capital Asset Pricing Model (CAPM) is fundamental to contemporary finance, utilized by investors, analysts, and portfolio managers to determine the anticipated return of an investment based on its degree of systematic risk. Our CAPM Calculator streamlines this task, enabling you to quickly calculate expected returns without needing manual computations or spreadsheets.
What Is the Capital Asset Pricing Model (CAPM)?
The Capital Asset Pricing Model (CAPM) is a financial model that describes the relationship between an investment’s expected return and its systematic risk, represented by beta (β).
In simple terms, CAPM answers this question:
“Given the risk of this investment, what return should I expect?”
Why CAPM Matters
CAPM assumes that investors need to be compensated for:
- Time Value of Money – measured by the risk-free rate (Rf)
- Risk Premium – additional return for taking on market risk
The Capital Asset Pricing Model Formula
Where:
- Re → Expected return of the investment
- Rf → Risk-free rate (typically government bonds)
- β (Beta) → Investment’s volatility relative to the market
- Rm → Expected market return
- (Rm − Rf) → Market Risk Premium
Understanding Beta (β)
- β = 1 → Asset moves with the market
- β > 1 → More volatile (riskier) than the market
- β < 1 → Less volatile
- β < 0 → Moves opposite the market
