Use this CAPM calculator to estimate the required return on an asset based on its market risk. Enter the risk-free rate, expected market return, and beta to compute required return and see where the asset sits on the Security Market Line.
Use template ->What is CAPM?
The Capital Asset Pricing Model estimates the return an investor should require on an asset given its exposure to systematic market risk. It was developed to answer a straightforward question: if you know how sensitive an asset is to broad market movements, what return should compensate you for that risk?
CAPM is a benchmark model, not a complete theory of asset pricing. It abstracts away idiosyncratic risk on the assumption that diversification eliminates it, leaving only market risk as the relevant input. That simplification is also its limitation: real assets carry risks the model does not capture.
CAPM formula
Expected Return = Rf + β × (Rm − Rf)
Where Rf is the risk-free rate, β is the asset’s beta, Rm is the expected market return, and the term (Rm − Rf) is the market risk premium. Beta above 1 means the asset is expected to move more than the market; below 1 means less.
How the CAPM calculator works
The calculator takes three core inputs and computes required return alongside the Security Market Line position. An optional expected return field lets you compare what the market currently implies against what the model says the asset should earn given its risk profile.
The output is most useful as a diagnostic. When a computed return looks off, it almost always points back to an input assumption worth examining rather than a flaw in the model itself. Beta estimates in particular are sensitive to the period and frequency used to derive them.
How CAPM is used in practice
CAPM appears most commonly in cost of equity estimation for WACC calculations, in equity research when assessing whether an asset is fairly priced relative to its risk, and in performance attribution when comparing actual returns against model-implied benchmarks.
Its value in practice is as a reference point. It tells you what return a given level of market risk should produce, which gives you a basis for judging whether a return assumption is conservative, aggressive, or roughly in line with what the model implies.