CAPM Expected Return Calculator

Enter Calculation

Risk-Free Rate (%)

Beta (β)

Expected Market Return (%)

Results

Expected Return E(R)

9%

required return under CAPM

Market Risk Premium (Rm − Rf)	5%
Beta-Adjusted Risk Premium	6%

What Is the CAPM Expected Return Calculator?

The Capital Asset Pricing Model (CAPM) estimates the return an investor should require from an asset given its systematic risk. This calculator applies the classic CAPM equation to turn three inputs — the risk-free rate, the asset's beta, and the expected market return — into a single expected (required) return figure. It is widely used in equity valuation, cost-of-equity estimation, and portfolio decisions.

How to Use It

Enter the risk-free rate (typically the yield on a short-term government bond), the asset's beta (its sensitivity to overall market movements, where 1.0 matches the market), and the expected market return. The calculator returns the expected return along with the market risk premium and the beta-adjusted risk premium so you can see how risk drives the result.

The Formula Explained

CAPM is written as $$E(R) = \text{Risk-Free Rate} + \text{Beta} \times \left( \text{Market Return} - \text{Risk-Free Rate} \right)$$ The term \((R_m - R_f)\) is the market risk premium — the extra return demanded for taking on market risk. Multiplying it by beta scales that premium to the specific asset: a beta above 1 amplifies the premium, while a beta below 1 reduces it. Adding the risk-free rate gives the total required return.

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The Security Market Line shows expected return rising linearly with beta.

The CAPM formula builds expected return from the risk-free rate plus beta times the market risk premium.

Worked Example

Suppose the risk-free rate is 3%, beta is 1.2, and the expected market return is 8%. The market risk premium is \(8\% - 3\% = 5\%\). The beta-adjusted premium is \(1.2 \times 5\% = 6\%\). Therefore $$E(R) = 3\% + 6\% = 9\%$$ An investor should require roughly a 9% return for this asset.

FAQ

What does beta mean? Beta measures an asset's volatility relative to the market. A beta of 1.5 means the asset tends to move \(1.5\times\) as much as the market.

What if my result is negative? A negative expected return can occur if beta is negative (the asset moves opposite the market) or the market premium is negative. This is mathematically valid under CAPM.

Can I enter rates as decimals? Enter all rates as percentages (e.g., 3 for 3%). The output is also expressed as a percentage.