Equity Risk Premium
7.00%
CAPM Calculator
Calculate expected return using the Capital Asset Pricing Model.
Expected Return
11.40%
Risk Premium × Beta
8.40%
How to use the CAPM Calculator
The CAPM Calculator is free and runs entirely in your browser — no sign-up, and nothing you enter leaves your device. It opens pre-filled with a realistic example, so you can see how it works before replacing any figure with your own; the results update as you type. Press Calculate to refresh the result panel, or Reset to return to the example.
The inputs it asks for:
- Risk-Free Rate — a percentage (enter 6 for 6%).
- Beta — a number.
- Expected Market Return — a percentage (enter 6 for 6%).
The formula
The Capital Asset Pricing Model estimates the return investors should demand for an asset's market risk:
E(R) = R_f + β · (R_m − R_f)- R_f
- the risk-free rate (e.g. a Treasury yield)
- β
- beta — the asset's sensitivity to market moves
- R_m
- the expected return of the overall market
- R_m − R_f
- the equity risk premium
Beta is the engine: β = 1 moves with the market, β > 1 amplifies its swings (more risk, higher demanded return), and β < 1 dampens them.
Worked example
Using the example values — Risk-Free Rate 3%, Beta 1.2, Expected Market Return 10% — the CAPM Calculator returns a Expected Return of 11.40%. It also reports Equity Risk Premium (7.00%), Risk Premium × Beta (8.40%).
Prefer your own numbers? Change any field above and this recomputes instantly.
Key terms
- Beta
- How much an asset's return moves relative to the market as a whole.
- Risk-free rate
- The return on a theoretically risk-free asset, usually a government bond yield.
- Equity risk premium
- The extra return investors demand for holding stocks over the risk-free rate.
- Expected return
- The return the model says compensates fairly for the asset's market risk.
Frequently asked questions
What is beta?
A measure of systematic risk. A stock with β = 1.2 has tended to move 1.2% for each 1% market move — so CAPM demands a higher return for it.
Where do I get the risk-free rate?
Practitioners commonly use a current Treasury yield — a 3-month T-bill for short horizons, or the 10-year note for long-term valuation.
What are CAPM's limitations?
It assumes a single risk factor and relies on estimates (beta, the market premium) that shift over time. It's a widely used baseline, not a precise prediction.