CAPM Calculator

Calculate expected stock returns using the Capital Asset Pricing Model. Analyze risk-adjusted returns, beta coefficients, and compare investments against market performance and risk-free rates.

CAPM Parameters

Risk-Free Rate

Typically 10-year Treasury bond rate

Market Return

Historical S&P 500 average is around 8-10%

Asset Information

β > 1: More volatile than market | β < 1: Less volatile | β = 1: Same as market

Compare Multiple Assets

Understanding CAPM

CAPM Formula

Expected Return = Risk-Free Rate + Beta × Market Risk Premium

Where Market Risk Premium = Market Return - Risk-Free Rate

Example:
If Risk-Free = 2.5%, Market Return = 8%, Beta = 1.2
Expected Return = 2.5% + 1.2 × (8% - 2.5%) = 9.1%

Beta Interpretation

  • • β = 1.0: Moves with market
  • • β > 1.0: More volatile than market
  • • β < 1.0: Less volatile than market
  • • β = 0: No correlation with market
  • • β < 0: Moves opposite to market

CAPM Assumptions

  • • Investors are rational and risk-averse
  • • Perfect information available to all
  • • No transaction costs or taxes
  • • Single investment period
  • • Unlimited borrowing/lending at risk-free rate

CAPM Applications

Portfolio Management:

  • • Asset valuation and pricing
  • • Performance measurement
  • • Portfolio construction
  • • Risk-adjusted returns

Corporate Finance:

  • • Cost of equity calculation
  • • Capital budgeting decisions
  • • Project risk assessment
  • • Hurdle rate determination