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How to Calculate CAPM

Calculate expected stock return using the Capital Asset Pricing Model based on beta and market return.

The Formula

E(R) = Rf + beta*(Rm - Rf)

The capm formula uses the mathematical relationship: E(R) = Rf + beta*(Rm - Rf). Each variable in the formula represents a measurable quantity that affects the final result.

Step-by-Step Method

  1. 1Identify all input values needed for the capm calculation.
  2. 2Substitute your known values into the formula: E(R) = Rf + beta*(Rm - Rf).
  3. 3Perform the arithmetic operations in the correct order (PEMDAS/BODMAS).
  4. 4Check that your result has the correct units and is within a reasonable range.
  5. 5Verify using the interactive CAPM Calculator to confirm your answer.

Related Topics

CAPMbetaexpected returnrisk premium

Use the Interactive Calculator

Skip the manual math — get instant results with our free CAPM calculator.

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