CAPM Calculator (Capital Asset Pricing Model)

The Capital Asset Pricing Model estimates the return an asset ought to offer given its systematic (market-wide) risk: E(R) = Rf + β·(Rm − Rf). Rm − Rf is the market risk premium — the extra return investors demand for holding market risk at all, over and above the risk-free rate. Beta scales that premium to the specific asset: β = 1 means the asset moves exactly with the market and earns the full market premium; β = 0 means the asset carries no systematic risk and earns just the risk-free rate; a fractional β earns a proportionally smaller premium, and a β above 1 earns a larger one.

A negative beta — an asset that tends to move opposite the market — makes the risk-premium term work in reverse, subtracting from the risk-free rate rather than adding to it. That's not an error case; it's the model correctly pricing a hedge-like asset, one expected to lag cash when the market does well but hold up (or gain) when the market falls.

Every input here — the risk-free rate, beta, and the expected market return — is a figure you supply directly, since none of them are universal constants: the risk-free rate tracks current government-bond yields, beta is typically estimated from an asset's historical price data, and the expected market return is itself a forecast. This calculator is the final CAPM arithmetic once you already have those three numbers — compare it with this site's WACC calculator, which takes cost of equity as a direct input precisely because a full WACC analysis often estimates that cost of equity via CAPM first.