Finance

CAPM Calculator

Estimate a stock's expected return from its beta, the risk-free rate, and the expected market return — the Capital Asset Pricing Model.


CAPM Calculator

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The Capital Asset Pricing Model estimates the return a stock should offer, given how much market risk it carries and what a safe alternative already pays.

How it works

It starts from a risk-free baseline — usually a government bond yield — then adds a premium sized to the stock’s beta: how much more (or less) it swings than the market as a whole. A beta of 1 tracks the market exactly; above 1 amplifies its moves, below 1 dampens them, and a negative beta moves against it.

Why beta and not the company’s own story

CAPM assumes company-specific risk — a bad earnings quarter, a lawsuit, a product recall — has already been diversified away by holding many stocks, so only the risk that moves with the whole market is left to be paid for. That is a simplifying assumption, not a guarantee; it is the model’s most common criticism.

How to use this calculator

  1. Enter the risk-free rate, usually a current 10-year government bond yield.
  2. Enter the stock’s beta, available from most brokerage or financial data pages.
  3. Enter the return you expect from the market as a whole.

Frequently asked questions

Where do I find a stock’s beta?

Most brokerage platforms and financial data sites publish it directly, usually calculated against a broad market index over the trailing few years.

What counts as “the market return”?

Commonly a long-run historical average for a broad index like the S&P 500, though reasonable people use different windows and it directly changes the answer.

Does a higher CAPM return mean a better stock?

No — it means the model expects more return only because it expects more risk. CAPM is a baseline for what a stock’s risk should be worth, not a buy signal on its own.

Why is my broker’s expected return different from this calculator’s?

Different risk-free rate, beta window, or market-return assumption — all three inputs are judgment calls, and small differences compound into a visibly different answer.

Important: This is general information, not financial advice. Figures are estimates, and your lender or provider decides the real numbers. Check with a qualified adviser before acting on them.

Sources

  1. SEC Investor.gov — Beta
  2. Sharpe, W.F. (1964), "Capital Asset Prices", Journal of Finance
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M. Whitfield

Personal finance writer

M. Whitfield writes the personal finance calculators, covering loans, mortgages, savings, tax and investment maths. The focus is on showing exactly which number goes into a formula and which assumptions a result depends on, so readers can tell when a figure applies to their situation and when it does not. Every finance page states what it does not account for as plainly as what it does.

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Calculator reviewer — finance

A. Whitfield-Reyes reviews the finance calculators, checking compounding conventions, rate-period alignment, and whether each page is explicit about the costs and tax treatment it leaves out. Financial results are easy to state with false precision, so review focuses on whether the page makes its assumptions visible to a reader who is not looking for them.

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