CAPM Calculator – Capital Asset Pricing Model

Calculate the CAPM expected return using Re = Rf + β × (Rm − Rf). Enter the risk-free rate, beta, and expected market return to see the market risk premium, the beta-adjusted risk premium, and the expected dollar return on your investment.

Quick Facts

Formula
Re = Rf + β × (Rm − Rf)
Rf is the risk-free rate, β is the asset's beta, and Rm is the expected market return.
Reading beta
β = 1 moves with the market
β > 1 is more volatile than the market, β < 1 is less volatile, and a negative β tends to move opposite the market.

Your Results

Calculated
Expected Return (CAPM)
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Re = Rf + β × (Rm − Rf)
Market Risk Premium
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Rm − Rf
Beta-Adjusted Risk Premium
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β × (Rm − Rf)
Expected Dollar Return
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Investment amount × expected return

Ready

Enter the risk-free rate, beta, and expected market return, then press Calculate.

How the CAPM Calculator works

The Capital Asset Pricing Model (CAPM) estimates the return an investor should expect from an asset given its systematic (market) risk. It is one of the most widely taught models in corporate finance for estimating the cost of equity and for judging whether an asset's expected return is fair compensation for its risk relative to the overall market.

The formula

CAPM states that the expected return on an asset equals the risk-free rate plus a risk premium proportional to the asset's beta:

Re = Rf + β × (Rm − Rf)

where Rf is the risk-free rate (commonly a government bond yield), β (beta) measures the asset's historical volatility relative to the market, and Rm is the expected return of the overall market. The term (Rm − Rf) is called the market risk premium (or equity risk premium), and β × (Rm − Rf) is the beta-adjusted risk premium added on top of the risk-free rate.

Worked example

With a 4.5% risk-free rate, a beta of 1.2, and an expected market return of 10%, the market risk premium is 10% − 4.5% = 5.5%. Multiplying by beta gives a beta-adjusted risk premium of 1.2 × 5.5% = 6.6%. Adding the risk-free rate back gives an expected return of 4.5% + 6.6% = 11.1%. On a $10,000 investment, that expected return works out to about $1,110 over the period the rates cover — typically one year for annualized inputs.

Reading beta

  • β = 1: the asset tends to move in step with the market.
  • β > 1: the asset is more volatile than the market — larger swings in both directions.
  • 0 < β < 1: the asset is less volatile than the market.
  • β < 0: the asset tends to move opposite the market, which can offer diversification value in a portfolio.

Assumptions and limitations

CAPM assumes markets are reasonably efficient, investors hold diversified portfolios, and beta is stable over the period being analyzed. It only prices systematic risk — the risk that diversification cannot remove — and treats company-specific (unsystematic) risk as diversified away. Historical beta is an estimate of future beta, not a guarantee, and the risk-free rate and market return you enter are inputs you choose, not facts the calculator looks up. Treat the output as a standard finance-theory estimate to support analysis, not a guaranteed return or personalized investment advice.

Frequently Asked Questions

What is the CAPM formula?
CAPM expected return is Re = Rf + β × (Rm − Rf), where Rf is the risk-free rate, β measures the asset's volatility relative to the market, and Rm is the expected return of the overall market. The term (Rm − Rf) is the market risk premium.
What does beta measure in CAPM?
Beta measures how much an asset's returns tend to move relative to the overall market. A beta of 1 means the asset tends to move with the market; beta above 1 means larger swings than the market; beta below 1 (but above 0) means smaller swings; a negative beta means the asset tends to move opposite the market.
What is the market risk premium?
The market risk premium is Rm − Rf, the return investors expect from the overall market above the risk-free rate. CAPM scales this premium by an asset's beta to estimate the extra return that asset should offer for its specific level of systematic risk.
What are the limitations of CAPM?
CAPM assumes efficient markets, a stable beta, and that diversification eliminates company-specific risk, so it only prices systematic (market) risk. Historical beta and forecast market returns are estimates, not guarantees, and CAPM ignores other factors such as size, value, or momentum that some multi-factor models add.

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