The Capital Asset Pricing Model (CAPM) is one of the most widely used tools in finance for estimating the return an investor should require from an asset, given its risk relative to the overall market. This calculator computes the CAPM expected return, solves for the implied beta from a target return, and isolates the market risk premium โ€” the three directions the same formula can be worked in.

How the CAPM Calculator works

CAPM assumes that an asset's expected return is driven entirely by its exposure to market-wide (systematic) risk, measured by beta. The formula, E(R) = Rf + ฮฒ(Rm โˆ’ Rf), starts from the risk-free rate and adds a risk-adjusted premium: the market risk premium (Rm โˆ’ Rf) scaled by the asset's beta. A beta of 1 means the asset should earn exactly the market return; a beta above 1 means it should earn more (because it swings more than the market), and a beta below 1 (or negative) means it should earn less.

The same relationship can be rearranged to solve for beta given a target expected return, or to isolate the market risk premium on its own. All three tabs use the identical underlying formula โ€” only the variable being solved for changes.

Inputs and what they mean

Risk-free rate (Rf) is commonly proxied by the yield on a long-term government bond, such as the 10-year US Treasury. Beta (ฮฒ) measures how much an asset's historical returns have moved relative to the market โ€” it is typically estimated by regressing an asset's returns against a market index over a multi-year period, though this calculator treats it as a direct input. Expected market return (Rm) is usually a long-run historical average for a broad index like the S&P 500, though analysts sometimes use forward-looking estimates instead.

Limits and edge cases

CAPM is a single-factor model โ€” it assumes all priced risk is captured by beta and ignores other well-documented return drivers such as size, value, and momentum (as in the Fama-French multi-factor models). It also assumes markets are efficient and that investors hold diversified portfolios, which may not match every real-world situation. If the market return equals the risk-free rate, the risk premium is zero and beta cannot be solved for (division by zero) โ€” the Solve Beta tab flags this case explicitly. CAPM outputs are estimates for comparison and discussion, not guarantees of actual future performance.