CAPM Calculator
Calculate the expected return on an investment with the Capital Asset Pricing Model (CAPM) from the risk-free rate, beta, and expected market return. Get the market risk premium, the risk premium, the CAPM expected return, and a plain-language read on the stock's beta.
Input
Typically the current yield on a short-term government bond (e.g. a 3-month T-bill).
A measure of the stock's volatility relative to the overall market (market beta = 1).
The expected annual return of the overall market (e.g. a broad stock index).
Output
| Metric | Value |
|---|---|
| No data yet | |
More ways to use this tool
REST API
curl -X POST https://api.iotools.cloud/v1/tool/capm-calculator \
-H "Authorization: Bearer YOUR_API_KEY" \
-H "Content-Type: application/json" \
-d '{
"riskFreeRate": "4.5",
"beta": "1.2",
"marketReturn": "10"
}'Swap in your own key from your account. The tool's fields are the body — no wrapper.
Ask an AI agent
Use the IOTools `capm-calculator` tool (CAPM Calculator) on this input:
YOUR_INPUT_HEREPaste this at any agent connected to the IOTools MCP server, then add your input.
Embed widget
<iframe
src="https://iotools.cloud/embed/capm-calculator/"
width="100%" height="520" frameborder="0" scrolling="no" loading="lazy"
title="CAPM Calculator — iotools.cloud"
sandbox="allow-scripts allow-forms allow-same-origin allow-downloads allow-popups allow-popups-to-escape-sandbox"
allow="clipboard-write"
style="width:100%;border:1px solid #e5e7eb;border-radius:12px;overflow:hidden"></iframe>
<script src="https://iotools.cloud/embed.js" async></script>Drop this into your own page — free, no key required, just a link back.
| Cost per API/MCP call | From 5 credits |
|---|---|
| Need more credits? | View pricing |
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Guides
What is CAPM?
The Capital Asset Pricing Model (CAPM) estimates the return an investor should expect from a stock, given its risk relative to the overall market. It's one of the most widely used formulas in finance for setting a required rate of return — used for stock valuation, capital budgeting, and estimating a company's cost of equity.
How this tool works
- Enter the risk-free rate — typically the current yield on a short-term government bond (e.g. a 3-month Treasury bill).
- Enter the stock's beta — a measure of how much it moves relative to the overall market (a market-tracking index has a beta of 1).
- Enter the expected market return — the return you expect from the overall market (e.g. a broad stock index) over the same period.
The CAPM Summary shows the market risk premium, the risk premium, the CAPM expected return, and a plain-language read on the stock's beta — whether it's more or less volatile than the market.
The formula
Expected Return = Risk-Free Rate + Beta × (Expected Market Return − Risk-Free Rate)
The term (Expected Market Return − Risk-Free Rate) is the market risk premium — the extra return investors demand for holding market risk instead of a risk-free asset. Multiplying it by beta scales that premium to the stock's own sensitivity to market moves, giving the stock's risk premium. Adding that back to the risk-free rate gives the CAPM expected return.
Reading beta
- Beta < 0 — the stock tends to move opposite the market.
- Beta < 0.8 — lower volatility than the market.
- Beta ≈ 1 (0.8–1.2 here) — moves roughly in line with the market.
- Beta > 1.2 — higher volatility than the market.
A higher beta means more risk, and CAPM prices that extra risk into a higher expected (required) return.
Common uses
- Estimating a stock's required rate of return for a discounted cash flow valuation
- Computing a company's cost of equity for a WACC calculation
- Comparing whether a stock's actual historical return has outperformed or underperformed what CAPM predicted
- Setting a benchmark hurdle rate for evaluating an investment
Limitations
CAPM is a simplified model: it assumes markets are efficient, beta is stable over time, and a single risk factor (market risk) explains expected returns. Real-world returns are influenced by many other factors CAPM doesn't capture, so treat the output as a starting benchmark, not a guarantee.
Privacy
This tool runs entirely in your browser. Your numbers are never uploaded to a server.