CAPM Calculator: Estimate Expected Returns with Capital Asset Pricing Model

Enter a current risk-free yield, the asset’s beta, and the market’s expected return; the calculator multiplies beta by the equity-risk premium and adds the risk-free rate to give an expected return. The long-run U.S. equity risk premium averages 5.2 % (Damodaran, 2024).

Capital Asset Pricing Model (CAPM) Calculator

Enter the risk-free rate as a percentage (e.g., 2.5 for 2.5%)

Enter the beta value (e.g., 1.2)

Enter the return on the market as a percentage (e.g., 8 for 8%)

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How to use the tool

  1. Risk-Free Rate (%) – type the latest 3-month Treasury yield; e.g., 4.78 or 5.11.
  2. Beta – enter the asset’s beta from research reports; e.g., 0.65 or 1.80.
  3. Return on the Market (%) – add your forecast for market return; e.g., 10.0 or 6.2.
  4. Press “Calculate” to display the expected return.

Underlying formula

The calculator applies

$$ E(R_i)=R_f+\beta_i\,(E(R_m)-R_f) $$

Example 1

  • Rf=0.9 %
  • β=1.3
  • E(Rm)=11 %

$$ E(R)=0.9+1.3\,(11-0.9)=14.03\% $$

Example 2

  • Rf=4.5 %
  • β=0.7
  • E(Rm)=8 %

$$ E(R)=4.5+0.7\,(8-4.5)=6.95\% $$

Quick-Facts

  • Typical beta range: 0 – 2 (Investopedia, “Beta Definition”).
  • 3-month U.S. T-bill yield averaged 5.36 % in 2024 (U.S. Treasury, 2024).
  • Historical equity risk premium ≈ 5 % for U.S. stocks (Damodaran, 2024).
  • Model introduced by Sharpe and Lintner in 1964 (Sharpe, 1964).

FAQ

What does the calculator return?

It outputs the asset’s required return, aligning risk and reward through the CAPM equation (Sharpe, 1964).

How do I find a current risk-free rate?

Use the yield on a matching-maturity Treasury bill; data update daily on treasury.gov (U.S. Treasury, 2024).

Why does beta matter?

Beta gauges volatility versus the market; a beta of 1.5 suggests 50 % more swing than the index (Investopedia).

What is the equity risk premium?

It is E(Rm) − Rf; U.S. average near 5 % over 1960-2023 (Damodaran, 2024).

Can an asset have negative beta?

Yes; gold funds often show beta −0.1, moving opposite equities (Morningstar “SPDR Gold Shares” 2023).

How precise is CAPM?

“CAPM explains roughly two-thirds of equity returns” (CFA Institute, 2019) but ignores idiosyncratic risk.

When should I update inputs?

Refresh after rate decisions, earnings releases, or portfolio rebalancing—at least quarterly (CFA Institute, 2020).

What if my beta is above 2?

High beta raises required return; consider hedging or diversification to control portfolio risk (Investopedia).

Important Disclaimer

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