CAPM Calculator – Capital Asset Pricing Model

Sharpe-Lintner Capital Asset Pricing Model (CAPM) Standards

The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly equities:

• Fundamental Equation: E(R_i) = R_f + β_i × [E(R_m) - R_f] + α

• Risk-Free Rate (R_f): Yield on benchmark government sovereign debt (typically the 10-Year US Treasury yield).

• Beta (β): Sensitivity of an asset's returns relative to market portfolio swings.

• Market Risk Premium (MRP): The excess return demanded by investors over the risk-free rate for holding risky equities: [E(R_m) - R_f].

• Cost of Equity (K_e) in WACC: Serves as the equity discount rate in corporate valuation: WACC = ((E) / (V) × K_e) + ((D) / (V) × K_d × (1 - t)).

Asset Beta Benchmarks Table

• Defensive Healthcare / Pharma: E(R_i) = 4.25\% + (0.55 × 5.75\%) = 7.41\%

• Regulated Utility: E(R_i) = 4.25\% + (0.65 × 5.75\%) = 7.99\%

• Broad Market Index / S&P 500: E(R_i) = 4.25\% + (1.00 × 5.75\%) = 10.00\%

• Large-Cap Tech / Apple: E(R_i) = 4.25\% + (1.20 × 5.75\%) = 11.15\%

• High-Beta Growth / Tesla: E(R_i) = 4.25\% + (1.85 × 5.75\%) = 14.89\%

How to Use This Calculator

Enter your Risk-Free Rate Rf (%) (e.g. 4.25), Asset Systematic Beta (β) (e.g. 1.20), Expected Market Return E(Rm) (%) (e.g. 10.0), Size / Specific Risk Premium (%) (e.g. 0.0), and Benchmark Asset Beta Preset — choose from Custom Asset Beta, Apple / Large-Cap Tech (Beta = 1.20), S&P 500 / Broad Market (Beta = 1.00). Results update instantly as you type — adjust any value to compare scenarios.

The Formula

Formula Reference: CAPM Calculator – Capital Asset Pricing Model

Input variables:

riskFreeRate — Risk-Free Rate Rf (%)

assetBeta — Asset Systematic Beta (β)

expectedMarketReturn — Expected Market Return E(Rm) (%)

specificRiskPremium — Size / Specific Risk Premium (%)

Computed outputs:

expectedReturn — Expected Return E(Ri)

marketRiskPremium — Market Risk Premium (MRP)

betaRiskPortion — Beta Risk Premium

riskCategory — Systematic Risk Level

waccCostOfEquity — Cost of Equity (Ke for WACC)

Mathematical relationships extracted from calculation logic:

mrp = rawRm - rawRf

betaPremium = beta * mrp

expectedReturn = rawRf + betaPremium + rawSpec

Standard: Published population-average reference data (CDC, USDA, DOE)

Worked Example

An investor evaluating Apple stock with a beta of 1.20 when 10-year Treasury bonds yield 4.25% and the S&P 500 is projected to return 10.0% expects an 11.15% annualized return to justify holding the stock.

Understanding Your Result

This calculation gives a precise result based on the inputs you provided. For practical decisions, consider whether the result changes meaningfully with slight variations in your inputs — if a 5–10% change in input causes a significant output change, gather more precise input data before deciding. Use this tool to quickly compare multiple scenarios side by side.