CAPM Expected Return Calculator
Use this CAPM expected return calculator to find a stock's expected return from the risk-free rate, its beta and the market return, plus the risk premium.
What it does
The CAPM Expected Return Calculator estimates the return an investor should require from an asset given its systematic risk. It applies the Capital Asset Pricing Model to combine the risk-free rate, the asset's beta, and the expected market return into a single required rate of return.
Data sources & parameters
This calculator uses standard financial formulas and runs entirely in your browser. It needs no external rate data — your result is computed only from the values you enter above.
We always strive to use the latest data for every variable so our results and reports are as accurate as possible. Even so, errors are possible — you should not rely on this tool or its report alone, and we accept no liability for any decision made based on it.
The formula
Expected return = Risk-free rate + Beta × (Market return − Risk-free rate)
How it works
It first works out the market risk premium as the expected market return minus the risk-free rate. It multiplies that premium by the asset's beta to get the asset-specific risk premium, then adds the risk-free rate back to arrive at the expected return.
Where it is used
- Estimating the required return on a stock before buying it
- Building a discount rate for valuation and cost-of-equity work
- Comparing how much extra return riskier assets should offer
Worked example
An investor looks at a stock with a beta of 1.2 when the risk-free rate is 3% and the expected market return is 10%. The market risk premium is …, the stock's own risk premium is …, and CAPM suggests an expected return of ….
What the CAPM expected return calculator does
The calculator applies the Capital Asset Pricing Model to estimate the return an investor should require from an asset given its market risk. Enter the risk-free rate (typically the current yield on a government bond in your market), the asset's beta (from financial data sites or estimated from past prices) and the return you expect from the broad market over your holding period. It shows the expected return, the asset's risk premium and the market risk premium.
The model rests on the idea that investors are not paid for risk they can diversify away, only for systematic, or market, risk. It is widely used to price equities, set discount rates and judge whether an investment offers enough return for its risk.
How the model works
The risk-free rate, usually the yield on a short-term government bond, is the baseline reward for parting with your money over time. The market risk premium is the extra return the whole market is expected to deliver above it: if the market is expected to return ten percent and the risk-free rate is three percent, the premium is seven percent. Beta measures how sensitive the asset is to market moves. Multiplying the market premium by beta gives the asset's risk premium, and adding the risk-free rate gives the expected return.
The formula
Expected return = Risk-free rate + Beta × (Market return − Risk-free rate)
The bracketed term is the market risk premium; beta scales it up or down for this asset. The inputs are percentages and a ratio, so the model works the same in any country or currency. A higher bond yield raises the risk-free rate, a more volatile stock has a higher beta, and a more optimistic outlook raises the expected market return.
Reading the results
The expected return is the minimum you should require to be fairly paid for the asset's risk. If you expect to earn more, the asset looks attractive on a risk-adjusted basis; if less, the model says you are not being compensated enough. A high-beta stock shows a large risk premium because it amplifies market swings. The market risk premium is shared by all assets and is often the most debated input.
Strengths and limits
CAPM is simple, intuitive and consistent, which is why it appears throughout corporate finance and investment analysis. It assumes beta captures all relevant risk, that investors can borrow and lend at the risk-free rate, and that markets are efficient. In practice beta is estimated from past data and can be unstable, and the expected market return is a judgement. Small changes in the market risk premium move the result noticeably.
Use the result as a benchmark. Run several assets through the same market and risk-free assumptions to see how their required returns differ because of beta alone. Try a conservative and an optimistic market return; if an investment only looks worthwhile under the most generous assumptions, that is worth knowing.
This article is general information only and is not financial advice.
About This CAPM Expected Return Calculator
Use this CAPM expected return calculator to get an instant estimate based on the figures you enter. Adjust the inputs above to match your situation, or browse all our calculators to plan your next step.
Frequently asked questions
How does the CAPM expected return calculator work?
What is the Capital Asset Pricing Model?
What does beta mean in CAPM?
What is the market risk premium?
Is the CAPM expected return a guarantee?
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