Capital Asset Pricing Model Calculator

Overview

The Capital Asset Pricing Model (CAPM) is a financial model that allows investors to estimate the expected return on an investment given its beta, the risk-free rate, and the expected return of the market. The CAPM formula is:

Expected Return = Risk-Free Rate + Beta * (Expected Market Return - Risk-Free Rate)

How to Use the Calculator

1. Enter the Risk-Free Rate in the first input field. This is the return on an investment with zero risk, such as a government bond yield.
2. Enter the Expected Market Return in the second input field. This is the expected return of the overall market.
3. Enter the Beta of the investment in the third input field. Beta measures the volatility of an investment relative to the market.
4. Click the Calculate button to compute the expected return.
5. The result will be displayed in the Result section.

Example

Suppose you have the following inputs:

• Risk-Free Rate: 2%
• Expected Market Return: 8%
• Beta: 1.5

Using the CAPM formula:

Expected Return = 2% + 1.5 * (8% - 2%) = 2% + 1.5 * 6% = 2% + 9% = 11%

So, the expected return on the investment would be 11%.