CAPM Calculator

Calculate expected return using the Capital Asset Pricing Model from beta and market return.

By Konstantin Iakovlev · Updated April 2026 · Source: SEC

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Expected Return

11.10%

Risk Premium

5.50%

CAPM Breakdown

Risk-Free Rate4.50%
Beta1.20
Market Risk Premium5.50%
Expected Return (Rf + Beta * MRP)11.10%

Use the CAPM Calculator above to calculate your results. Enter your values and see instant results — all calculations run in your browser.

Disclaimer: This calculator is for informational purposes only and does not constitute tax, financial, or legal advice. Results are estimates based on the information you provide and current rates. Always consult a qualified tax professional or financial advisor for advice specific to your situation.

How It Works

The Capital Asset Pricing Model estimates the return you should expect from an asset given the risk you take on to hold it. That framing is useful when you are sizing up an investment in the 2026 market and asking whether its projected return actually pays you for its risk. Feed in a few financial metrics and the model returns an asset's theoretical fair return.

CAPM runs on the formula Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). The Risk-Free Rate stands in for the return on a riskless investment, usually proxied by the yield on a long-term government bond. Beta gauges how much the asset swings relative to the broader market, while Market Return captures the return expected from the market as a whole.

Treat the output as a model estimate rather than a guarantee, because it rises or falls with the quality of what you put in. Carrying a historical beta forward without accounting for shifts in the company's business or in market conditions is a frequent source of error. The model also leans on assumptions of efficient markets and rational investors that the real world does not always honor.

Example: Estimating Expected Return for a Tech Stock in 2026

  1. 1 Let's say you're evaluating a tech stock in early 2026. You've identified the 10-year US Treasury yield (our risk-free rate) as 4.5% and the expected market return for 2026 (e.g., S&P 500) as 10.0%. Through your analysis, you've determined this tech stock has a beta of 1.3.
  2. 2 Using the CAPM formula: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in our values: Expected Return = 4.5% + 1.3 * (10.0% - 4.5%). This simplifies to Expected Return = 4.5% + 1.3 * 5.5%.
  3. 3 The calculation yields: Expected Return = 4.5% + 7.15% = 11.65%. Therefore, the CAPM suggests an expected return of 11.65% for this tech stock.
  4. 4 This 11.65% represents the return you should theoretically expect from this stock given its risk relative to the market and the current risk-free rate. If your own projected return for the stock is higher than 11.65%, it might be considered undervalued, while a lower projected return could indicate it's overvalued according to the CAPM.

Source: SEC · Last updated: April 2026

Frequently Asked Questions

What does the CAPM formula calculate?
CAPM calculates the expected return on an investment based on its systematic risk (beta). The formula is: Expected Return = Risk-Free Rate + Beta x (Market Return - Risk-Free Rate). It tells you the return you should demand for the level of risk taken.
What is beta in CAPM?
Beta measures how much a stock moves relative to the overall market. A beta of 1.0 means the stock moves with the market. Above 1.0 means more volatile (tech stocks often have beta 1.2-1.5). Below 1.0 means less volatile (utilities often have beta 0.4-0.7).
What risk-free rate should I use in CAPM?
Use the yield on the 10-year US Treasury bond as the risk-free rate for long-term investments, or the 3-month T-bill rate for short-term analysis. The risk-free rate represents the return you could earn with zero risk, forming the baseline for any riskier investment.

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