# CAPM Calculator – Capital Asset Pricing Model

URL: https://speedycalculator.com/calculators/finance/capm/
Last updated: 2026-10-25

> The CAPM calculator works out the expected return (cost of equity) of a stock from the risk-free rate, the stock's beta and the expected market return, and shows the market risk premium and the stock's risk premium.

## Inputs

- Risk-free rate (%)
- Beta (β)
- Expected market return (%)

## Results

- Market risk premium
- Stock risk premium
- Expected return (cost of equity)

## Formula

```
Expected return = risk-free rate + β × (expected market return − risk-free rate)
Market risk premium = market return − risk-free rate
```

## Explanation

The capital asset pricing model says investors should be paid for systematic (market) risk only. It is the most common way to estimate the cost of equity for WACC and DCF valuations, though real returns often deviate from it.

### How to use the CAPM Calculator – Capital Asset Pricing Model

- **Risk-free rate**
- **Beta (β)**
- **Expected market return**

Results update as you type, and every field accepts the units shown in its menu.

### How it works

Enter the risk-free rate, the stock's beta and the expected market return.

### Tips

- Take figures from the same financial statements and the same fiscal year.
- Compare ratios with companies in the same industry, not across industries.
- Use several valuation measures together; no single ratio tells the whole story.
- Market prices change every second – refresh the share price before you rely on a result.

### Common mistakes to avoid

- Mixing per-share figures with company totals.
- Using trailing earnings for one company and forward earnings for another.
- Forgetting dilution from options and convertible securities.

### Inputs explained

FieldWhat to enterRisk-free rateIn %Beta (β)A numberExpected market returnIn %

### What each result means

- **Market risk premium** = [Expected market return] - [Risk-free rate]
- **Stock risk premium** = [Beta (β)]×([Expected market return] - [Risk-free rate])
- **Expected return (cost of equity)** = [Risk-free rate] + [Beta (β)]×([Expected market return] - [Risk-free rate])

### Example values

How the main result changes when **Risk-free rate** changes and everything else stays at the example values above:

Risk-free rate (%)Expected return (cost of equity) (%)2.110.983.1510.774.210.565.2510.356.310.148.49.72

## Worked example

Inputs — Risk-free rate: 4.2 %; Beta (β): 1.2; Expected market return: 9.5 %.

Results — Market risk premium = 5.3 %; Stock risk premium = 6.36 %; **Expected return (cost of equity) = 10.56 %**.

## FAQ

**What risk-free rate should I use?**
The yield on a long-term government bond, such as the 10-year U.S. Treasury.

**What is a typical market risk premium?**
Around 4–6% for the U.S. market.

**Is CAPM accurate?**
It's a useful benchmark, but actual returns often differ from its predictions.

**What formula does the CAPM Calculator – Capital Asset Pricing Model use?**
Expected return = risk-free rate + β × (expected market return − risk-free rate).


## Sources

- [Corporate Finance Institute – financial ratios](https://corporatefinanceinstitute.com/)