THE NUMORIX GUIDE
How to use the CAPM Calculator
Last reviewed September 14, 2026
What this calculator does
The engine applies the Capital Asset Pricing Model: risk premium = beta x (market return - risk-free rate), then expected return = risk-free rate + risk premium.
Formula and method
The engine applies the Capital Asset Pricing Model: risk premium = beta x (market return - risk-free rate), then expected return = risk-free rate + risk premium. All three rates are entered as percentages, so the calculation can stay in percentage points without converting them to decimals.
Variables and inputs
Enter Risk-Free Rate, Beta, and Market Return. The rates are annual percentage assumptions and beta is a unitless sensitivity to the market. The UI recalculates immediately and shows both expected return and the beta-adjusted risk premium.
Worked example
With a 4% risk-free rate, beta of 1.2, and 10% market return, the market premium is 10 - 4 = 6 percentage points. Risk premium = 1.2 x 6 = 7.2%, and expected return = 4 + 7.2 = 11.2%.
How to interpret the result
CAPM says an asset's modeled required or expected return is the risk-free return plus compensation for market risk. A beta above 1 amplifies the market premium, beta below 1 reduces it, and beta is not a forecast of the asset's total volatility or future price.
Common mistakes to avoid
Keep the risk-free and market returns in the same period and currency context. Enter beta as 1.2 rather than 120%, and do not add the risk premium twice. Do not treat expected return as a guaranteed investment return.
Assumptions and limitations
The model uses one beta and one market premium and omits idiosyncratic risk, changing beta, leverage changes, liquidity, taxes, inflation, non-normal returns, and the choice of market proxy. Its output is a theoretical estimate and can be negative or unusually high when assumptions are unusual.