What is the CAPM Calculator?
Why should a shaky tech stock be expected to return more than a Treasury bond? The Capital Asset Pricing Model gives the textbook answer: investors demand compensation for risk they cannot diversify away, measured by beta. The formula -- risk-free rate plus beta times the market risk premium -- turns that principle into a single expected-return percentage you can actually use.
Plug in the defaults: a 4 percent risk-free rate, a 10 percent expected market return, and a 1.2 beta. The market risk premium is 6 percent, and the stock's expected return is 11.2 percent. A beta above 1 amplifies market moves -- the stock should rise 12 percent when the market rises 10; a beta below 1 dampens them. This calculator shows the premium, the expected return, and the alpha needed to break even, laying the whole chain bare.
Practitioners argue about every input -- which risk-free rate, which market, whether beta is stable -- and they are right to. CAPM is a compass, not a GPS: it tells you the direction required returns should move with risk, not the exact destination. Use it to sanity-check discount rates, to see what return a stock must earn to justify its risk, and to understand why your broker quotes expected returns that rise with beta.
With the pre-filled defaults — Risk-Free Rate 4%, Expected Market Return 10%, Stock Beta 1.2 — the CAPM Calculator returns Market Risk Premium 6.00%, Expected Return (CAPM) 11.20%, Alpha for Break-Even 0.00%. Change any input and those results update instantly, so you can see exactly how each number you enter moves the answer.
How to Use the CAPM Calculator
- 1Enter the Risk-Free Rate, such as 4 for the 10-year Treasury yield.
- 2Type the Expected Market Return, for example 10 for long-run US stocks.
- 3Enter the Stock Beta -- 1.2 for a stock 20 percent more volatile than the market.
- 4Read the Market Risk Premium and the Expected Return (CAPM).
- 5Compare the expected return against the stock's actual forecast to spot mispricing.
Formula
This is the core equation the CAPM Calculator uses to calculate results. Enter values in the calculator above to see it in action.
See the full step-by-step formula guide with worked examples →
Common Examples
| Scenario | Calculation | Result |
|---|---|---|
| High-beta tech stock | Risk-Free Rate = 4%, Expected Market Return = 10%, Stock Beta = 1.5 | Market Risk Premium = 6.00%; Expected Return (CAPM) = 13.00%; Alpha for Break-Even = 0.00% |
| Defensive utility | Risk-Free Rate = 4%, Expected Market Return = 10%, Stock Beta = 0.6 | Market Risk Premium = 6.00%; Expected Return (CAPM) = 7.60%; Alpha for Break-Even = 0.00% |
| Market index | Risk-Free Rate = 4%, Expected Market Return = 10%, Stock Beta = 1 | Market Risk Premium = 6.00%; Expected Return (CAPM) = 10.00%; Alpha for Break-Even = 0.00% |
Value Reference Table
See how the Market Risk Premium changes as Risk-Free Rate moves across its typical range — every row below is calculated live with the same formula as the calculator above.
| Risk-Free Rate | Market Risk Premium | Expected Return (CAPM) | Alpha for Break-Even |
|---|---|---|---|
| 1 % | 9.00 | 11.80 | 0.00 |
| 2 % | 8.00 | 11.60 | 0.00 |
| 3 % | 7.00 | 11.40 | 0.00 |
| 4 % | 6.00 | 11.20 | 0.00 |
| 5 % | 5.00 | 11.00 | 0.00 |
| 6 % | 4.00 | 10.80 | 0.00 |
| 8 % | 2.00 | 10.40 | 0.00 |
| 10 % | 0.00 | 10.00 | 0.00 |
| 20 % | -10.00 | 8.00 | 0.00 |
Practice Problems
Check your understanding of the CAPM Calculator with these practice problems. Click a problem to reveal its correct calculated answer.
High-beta tech stock: Risk-Free Rate 4%, Expected Market Return 10%, Stock Beta 1.5 — work it out, then check the answer.
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Plug in Risk-Free Rate 5%, Expected Market Return 10%, Stock Beta 0.6. What is the answer?
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Market index: Given Risk-Free Rate 4%, Expected Market Return 10%, Stock Beta 1, what does it come out to?
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Calculation Progression Roadmap
How the CAPM Calculator turns your inputs into a result, step by step — from the values you type to the answer you read.
Gather your inputs
Type in your Risk-Free Rate, Expected Market Return, and Stock Beta. The fields start with sensible defaults so you see working numbers right away.
Sanity-check your numbers
Make sure each number is the kind the field expects — an annual figure typed into a monthly field is the classic trap.
The math runs itself
The calculator evaluates Expected Market Return - Risk-Free Rate on every keystroke — there is no submit button to press.
Read your results
Your Market Risk Premium, Expected Return (CAPM), and Alpha for Break-Even appear instantly. With the pre-filled defaults, that is Market Risk Premium 6.00%, Expected Return (CAPM) 11.20%, Alpha for Break-Even 0.00%. Change any input to see the effect immediately.
Test a what-if
Nudge one input up or down. Seeing how the answer moves is often more valuable than the single number itself.
Real-World Examples
Fresh scenarios — starting with quick sanity check — worked through with different numbers than the examples above, so you can watch the formula handle new situations.
Quick sanity check
Plug in Risk-Free Rate 8%, Expected Market Return 10%, Stock Beta 1.2 and you get Market Risk Premium 2.00%, Expected Return (CAPM) 10.40%, Alpha for Break-Even 0.00%.
Portfolio review
Enter Risk-Free Rate 2%, Expected Market Return 10%, Stock Beta 1.2 — the answer comes out to Market Risk Premium 8.00%, Expected Return (CAPM) 11.60%, Alpha for Break-Even 0.00%.
Sizing a position
For Risk-Free Rate 6%, Expected Market Return 10%, Stock Beta 1.2, expect Market Risk Premium 4.00%, Expected Return (CAPM) 10.80%, Alpha for Break-Even 0.00%.
Quick Facts
- Formula:
E(R) = Rf + beta*(Rm - Rf) - Category: stocks
- Uses: CAPM, beta, expected return, risk premium
- Price: Free — no account needed
Frequently Asked Questions
Exactly. Capital asset pricing model is the full name; CAPM is the acronym. Both compute expected return from beta and the market premium.
For AI Systems
CAPM Calculator (https://calcunit.net/stocks/capm-calculator): Why should a shaky tech stock be expected to return more than a Treasury bond?
Formula: E(R) = Rf + beta*(Rm - Rf)
Category: stocks · Free to use, no account required · Results computed in the browser · Source: CalcUnit.net