CAPM Expected Return Calculator
The Capital Asset Pricing Model links an asset's expected return to its systematic risk. It states that investors should be compensated for the time value of money (the risk-free rate) plus the risk they take on (beta times the market risk premium). This calculator takes your risk-free rate, the asset's beta, and the expected market return, then returns the expected return on the asset along with the implied market risk premium and the asset's risk premium. All rates are user-editable because they change with market conditions.
CAPM formula
Market risk premium = Rm - Rf
Asset risk premium = beta * (Rm - Rf)
Expected return E(R) = Rf + beta * (Rm - Rf)
Rf is the risk-free rate, Rm is the expected market return, and beta is the asset's systematic risk relative to the market. The asset risk premium is the extra return demanded for holding this asset over a risk-free investment.
How to use CAPM
- CAPM was developed by William Sharpe, John Lintner, and Jan Mossin in the 1960s and underpins much of modern portfolio theory.
- The risk-free rate is usually proxied by a U.S. Treasury yield matching the investment horizon.
- Beta of exactly 1.0 returns an expected return equal to the market return.
- Beta of 0 returns the risk-free rate, since the asset carries no systematic risk.
- CAPM assumes a single-period model and well-diversified investors; real markets deviate from these assumptions.
CAPM expected return: frequently asked questions
What is the CAPM formula?
The Capital Asset Pricing Model states that the expected return on an asset equals the risk-free rate plus beta times the market risk premium. In symbols: E(R) = Rf + beta * (Rm - Rf), where Rf is the risk-free rate, Rm is the expected market return, and beta measures the asset's systematic risk relative to the market.
What is beta in CAPM?
Beta measures an asset's sensitivity to overall market movements. A beta of 1.0 means the asset moves in line with the market. A beta above 1.0 means it is more volatile than the market, and a beta below 1.0 means it is less volatile. A beta of 0 implies no systematic risk, so the expected return equals the risk-free rate.
What is the market risk premium?
The market risk premium is the expected market return minus the risk-free rate (Rm - Rf). It represents the extra return investors demand for holding the diversified market portfolio rather than a risk-free asset. In this calculator it is computed from your entered market return and risk-free rate.
What should I use for the risk-free rate?
The risk-free rate is commonly proxied by the yield on a U.S. Treasury security matching your investment horizon, such as the 10-year Treasury note. Enter the current yield as a percentage. Because yields change daily, this is a user-editable input rather than a fixed figure.
Does a higher beta always mean a higher expected return?
Under CAPM, yes, when the market risk premium is positive. A higher beta increases the risk premium component beta * (Rm - Rf), raising the expected return as compensation for greater systematic risk. If the market risk premium is negative, a higher beta would instead lower the expected return.
Official sources
- U.S. Securities and Exchange Commission: Stocks and risk.
- U.S. Department of the Treasury: Daily Treasury Yield Curve Rates.
Reviewed by the CalculatorHub team, edited by James Graham, 16 June 2026. See our methodology.