CAPM
- Created by
- Renato Passos, Eng. de Software
- Reviewed by
- Renato Passos, Eng. de Software
Last updated: Apr 18, 2026
Formula
CAPM
About this calculator
The CAPM Calculator is an online tool that helps calculate the expected return of a financial asset based on the capital asset pricing model (CAPM). The CAPM is a widely used model in finance that relates the expected return of an asset to the risk associated with it.
The formula behind the calculator is R_e = R_f + β·(R_m − R_f), where R_e is the expected return of the asset, R_f is the risk-free rate of return, β is the asset's beta, and R_m is the market return. This formula allows investors and financial analysts to assess the expected performance of an asset relative to its risk.
The calculator is useful in various real-world scenarios, such as when an investor is considering investing in stocks or other financial assets and wants to evaluate the potential return relative to the risk. Additionally, financial analysts can use the calculator to compare the performance of different assets and portfolios.
However, it is essential to exercise caution when using the calculator, as the CAPM is a simplified model that does not account for all factors that affect the financial market. Furthermore, the parameters used in the formula, such as beta and the risk-free rate of return, must be estimated accurately to obtain reliable results.
Frequently asked questions
What is CAPM?
CAPM is a capital asset pricing model that relates the expected return of an asset to the risk associated with it. It is widely used in finance to evaluate the expected performance of assets and portfolios.
How to calculate the beta of an asset?
The beta of an asset can be calculated by dividing the covariance between the asset's return and the market return by the variance of the market return. This can be done using historical price data of stocks or other financial assets.
What is the risk-free rate of return?
The risk-free rate of return is the return of an investment that has no risk, such as the interest rate of treasury bonds. It is used as a benchmark to evaluate the performance of other investments.
How to use the CAPM calculator?
To use the CAPM calculator, simply enter the values of the asset's beta, the risk-free rate of return, and the market return. The calculator will then calculate the expected return of the asset based on the CAPM formula.
What are the limitations of CAPM?
CAPM is a simplified model that does not account for all factors that affect the financial market. Furthermore, the parameters used in the formula must be estimated accurately to obtain reliable results.