Capital Asset Pricing Model (CAPM) Calculator
Estimate the expected return (cost of equity) using the risk-free rate, beta and market risk premium.
Input Data
Results
At a glance:CAPM expected return = risk-free rate + beta x (market return - risk-free rate). Beta measures sensitivity to the market: 1 moves with the market, >1 more volatile, <1 less volatile. Example: risk-free 4%, beta 1.2, market 9% gives 4% + 1.2 x 5% = 10%. WARNING: CAPM relies on unstable estimates (beta, market premium), assumes a single systematic factor and efficient markets; it is a theoretical benchmark, not a forecast.
Formula
Expected return = risk-free rate + beta × (market return − risk-free rate).
In symbols: E(R) = Rf + β × (Rm − Rf).
$$E(R) = R_f + \beta \times (R_m - R_f)$$How to Use
- Enter the risk-free rate (e.g. HK Exchange Fund Bill yield).
- Enter the asset's beta.
- Enter the expected market return.
- View the expected return (cost of equity).
FAQ
What is beta?
Beta measures how much an asset moves relative to the market. Beta 1 means it moves with the market; above 1 is more volatile (and riskier) than the market; below 1 is more stable. Higher beta demands a higher expected return under CAPM.
What risk-free rate should I use in Hong Kong?
A common proxy is the yield on Hong Kong Exchange Fund Bills or long-dated government bonds. The exact choice affects the result, so use a consistent, appropriate tenor for your holding period.
Is CAPM a reliable forecast?
No. CAPM is a theoretical pricing benchmark based on estimates (beta and the market risk premium are unstable). It helps set a required return or cost of equity, but should not be read as a guaranteed outcome.
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References
Content review: Calculatorism Finance Team. Results are for reference only; please refer to the relevant authorities for the official figures.