In finance, the Capital Asset Pricing Model is used to describe the relationship between the risk of a security and its expected return. You can use this Capital Asset Pricing Model (CAPM) Calculator to calculate the expected return of a security based on the risk-free rate, the expected market return and the stock's beta.
Complete the form below and click "Calculate" to see the results.
CAPM Formula
The calculator uses the following formula to calculate the expected return of a security (or a portfolio):
E(Ri) = Rf + [ E(Rm) − Rf ] × βi
Where:
E(Ri) is the expected return on the capital asset,
Rf is the risk-free rate,
E(Rm) is the expected return of the market,
βi is the beta of the security i
Example: Suppose that the risk-free rate is 3%, the expected market return is 9% and the beta (risk measure) is 4. In this example, the expected return would be calculated as follows:
E(Ri) = Rf + [ E(Rm) − Rf ] × βi = 3% + (9% − 3%) × 4 = 27%
E(Ri) = 27%
In finance, the Capital Asset Pricing Model is used to describe the relationship between the risk of a security and its expected return. You can use this Capital Asset Pricing Model (CAPM) Calculator to calculate the expected return of a security based on the risk-free rate, the expected market return and the stock's beta.
Complete the form below and click "Calculate" to see the results.
CAPM Formula
The calculator uses the following formula to calculate the expected return of a security (or a portfolio):
E(Ri) = Rf + [ E(Rm) − Rf ] × βi
Where:
E(Ri) is the expected return on the capital asset,
Rf is the risk-free rate,
E(Rm) is the expected return of the market,
βi is the beta of the security i
Example: Suppose that the risk-free rate is 3%, the expected market return is 9% and the beta (risk measure) is 4. In this example, the expected return would be calculated as follows:
E(Ri) = Rf + [ E(Rm) − Rf ] × βi = 3% + (9% − 3%) × 4 = 27%
E(Ri) = 27%