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CAPM Calculator

Calculate the expected return of an asset using the Capital Asset Pricing Model (CAPM). Combines the risk-free rate, market risk premium, and the asset's beta to determine fair expected return.

Reviewed by Christopher FloiedUpdated

This free online capm calculator provides instant results with no signup required. All calculations run directly in your browser — your data is never sent to a server. Enter your values below and see results update in real time as you type. Perfect for everyday calculations, homework, or professional use.

Yield on Treasury bonds (e.g., 10-year T-note).

The asset's sensitivity to market movements (beta of 1 = market average).

Expected annual return of the overall market.

How to Use This Calculator

1

Enter your input values

Fill in all required input fields for the CAPM Calculator. Most fields include unit selectors so you can work in your preferred unit system — metric or imperial, whichever matches your problem.

2

Review your inputs

Double-check that all values are correct and that you have selected the right units for each field. Incorrect units are the most common source of calculation errors and can produce results that are off by factors of 2, 10, or more.

3

Read the results

The CAPM Calculator instantly computes the output and displays results with units clearly labeled. All calculations happen in your browser — no loading time and no data sent to a server.

4

Explore parameter sensitivity

Try adjusting individual input values to see how the output changes. This is a quick and effective way to develop intuition about how different parameters influence the result and to identify which inputs have the largest effect.

Formula Reference

CAPM Calculator Formula

See calculator inputs for the governing equation

Variables: All variables and their units are labeled in the calculator interface above. Input fields accept values in multiple unit systems — select your preferred unit from the dropdown next to each field.

When to Use This Calculator

  • •Use the CAPM Calculator when comparing financial options side-by-side — such as different loan terms or investment returns — to make more informed decisions.
  • •Use it to quickly estimate costs or returns before making purchasing, investment, or borrowing decisions.
  • •Use it for financial education and planning to understand how compound interest, fees, or tax affects the real value of money over time.
  • •Use it when building or reviewing a budget to verify that projections and calculations are mathematically correct.

About This Calculator

The CAPM Calculator is a free financial calculation tool designed to help individuals and businesses understand key financial concepts and estimate costs, returns, and loan parameters. Calculate the expected return of an asset using the Capital Asset Pricing Model (CAPM). Combines the risk-free rate, market risk premium, and the asset's beta to determine fair expected return. The calculations are based on standard financial mathematics formulas. Results are for informational and educational purposes only and should not be considered financial, investment, or tax advice. Consult a qualified financial professional before making financial decisions. All calculations are performed in your browser — no personal financial data is stored or transmitted.

About CAPM Calculator

The Capital Asset Pricing Model (CAPM) calculator computes the expected return of an investment based on its systematic risk (beta) relative to the overall market. Developed by William Sharpe in the 1960s, CAPM is the foundational model of modern financial theory and is widely used in corporate finance to determine the cost of equity, in portfolio management to evaluate whether a stock is fairly priced, and in capital budgeting to set discount rates for project evaluation. The model states that investors should be compensated for two things: the time value of money (risk-free rate) and the additional risk of the investment above the market (beta times the equity risk premium).

The Math Behind It

CAPM states that E(Ri) = Rf + beta_i * (E(Rm) - Rf), where E(Ri) is the expected return on asset i, Rf is the risk-free rate, beta_i is the asset's beta, and E(Rm) is the expected market return. Beta measures systematic (non-diversifiable) risk: beta = Cov(Ri, Rm) / Var(Rm). A beta of 1 means the asset moves with the market, beta > 1 means it is more volatile, and beta < 1 means it is less volatile. The market risk premium (E(Rm) - Rf) has historically averaged about 5-7% for US equities. CAPM assumes investors hold diversified portfolios and only require compensation for systematic risk, not firm-specific risk. The Security Market Line (SML) plots expected return versus beta; assets above the SML are undervalued (offering excess return for their risk), and those below are overvalued. Critics note that CAPM relies on several unrealistic assumptions (homogeneous expectations, no taxes, no transaction costs) and that empirical tests show factors beyond beta (size, value, momentum) also explain returns, leading to multi-factor models like the Fama-French three-factor model.

Formula Reference

CAPM

E(R) = Rf + beta * (Rm - Rf)

Variables: E(R) = expected return; Rf = risk-free rate; beta = systematic risk; Rm = market return

Worked Examples

Example 1: High-beta tech stock

Risk-free rate 4.5%, market return 10%, beta 1.5.

Step 1:E(R) = 4.5 + 1.5 * (10 - 4.5).
Step 2:= 4.5 + 1.5 * 5.5 = 4.5 + 8.25 = 12.75%.

The expected return is 12.75%, reflecting higher risk.

Example 2: Low-beta utility stock

Risk-free rate 4.5%, market return 10%, beta 0.6.

Step 1:E(R) = 4.5 + 0.6 * (10 - 4.5).
Step 2:= 4.5 + 3.3 = 7.8%.

The expected return is 7.8%, reflecting lower systematic risk.

Common Mistakes & Tips

  • !Using historical beta for forward-looking decisions; beta can change over time.
  • !Applying CAPM to assets where beta is not meaningful (private companies, illiquid assets).
  • !Forgetting that CAPM only captures systematic risk; it does not account for firm-specific risks.

Related Concepts

P/E Ratio

A simpler valuation metric that complements CAPM's expected return analysis.

ROI

Measures actual realized return, which can be compared to CAPM's expected return.

Used in These Calculators

Calculators that build on or apply the concepts from this page:

Beta Coefficient Calculator

Sharpe Ratio Calculator

WACC Calculator (Weighted Average Cost of Capital)

Frequently Asked Questions

What is beta?

Beta measures how sensitive a stock's returns are to overall market movements. A beta of 1.2 means the stock tends to move 20% more than the market: if the market rises 10%, the stock rises about 12%.

What risk-free rate should I use?

Typically the yield on the 10-year US Treasury note, which is currently around 4-5%. For short-term analysis, the 3-month T-bill rate may be used.

Is CAPM still relevant?

CAPM remains widely used in practice for its simplicity, but most academics and practitioners supplement it with multi-factor models (Fama-French, Carhart) that better explain actual returns.