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The CAPM Calculator helps investors determine the theoretical expected return of an asset based on its systematic risk relative to the broader market. By calculating this value, you can assess whether a potential investment offers sufficient compensation for the level of risk you are undertaking.
The CAPM (Capital Asset Pricing Model) Calculator computes the expected return on an investment based on its systematic risk, using the risk-free rate, the investment's beta, and the expected market return.
The CAPM formula is: Expected Return = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate).
Beta measures an investment's volatility relative to the overall market; a beta greater than 1 indicates higher risk and potential return.
The CAPM is widely used to estimate the cost of equity capital and to evaluate whether an investment offers adequate compensation for its risk.
This model assumes markets are efficient and investors are rational, which may not always hold in real-world conditions.
Ra = Rrf + Ba * (Rm - Rrf)
The formula adds the risk-free rate to the product of the asset's beta and the equity market risk premium, which is the difference between the expected market return and the risk-free rate.
An institutional investor or a retail stock picker uses this tool to evaluate if a specific stock is fairly priced given its volatility compared to the market index. For instance, if you are considering adding a high-growth tech stock to your portfolio, you can input its beta to see what return you should demand as compensation for the added risk. This helps in making objective decisions rather than relying on gut feelings. It is particularly useful for building diversified portfolios where balancing risk and reward is the primary objective.
If the risk-free rate is 3%, the market return is 10%, and your stock has a beta of 1.5, the CAPM formula calculates an expected return of 13.5%. This means you should expect at least a 13.5% return to justify the risk of holding this specific asset.
These authoritative sources inform our calculator methodology and ensure accuracy.
Written by Qasem Mohammed
Financial tools developer and founder of QFINHUB. All calculators are built with industry-standard formulas and reviewed for accuracy. Content is for educational purposes only — always consult a qualified financial professional for decisions about your specific situation.
Last updated: June 25, 2026 ·About QFINHUB · Editorial Policy
Last reviewed by Qasem Mohammed — June 25, 2026
AI & Software Engineer, Founder & Lead Developer at QFINHUB · Editorial Policy
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Expected Return
+11.10%
Market Risk Premium
+5.50%
Market return minus risk-free rate
Beta Risk Premium
+6.60%
Beta × Market Risk Premium (1.20 × +5.50%)
Security Market Line
Above SML — potentially undervalued