03 // Bidirectional STEM Calculators // FINANCEER = Rf + β × (Rm - Rf)

Capital Asset Pricing Model (CAPM) Calculator

The Capital Asset Pricing Model (CAPM) prices an asset's required return ER as the sum of the risk-free rate Rf plus systematic beta exposure β multiplied by the equity market risk premium (Rm - Rf).

ER = Rf + β × (Rm - Rf)

Pick which value you want to calculate (or type into any field):Solving for: E(R) (%) — Expected Cost of Equity

Expected Cost of EquityCalculated

CAPM required annual return in percent

135

Risk-Free Rate

10-year sovereign Treasury yield in percent

015

Asset Beta

Systematic covariance sensitivity relative to the market index

-14

unit

Expected Market Return

Expected total annual return on the broad equity market

325

Calculated Result · Expected Cost of Equity (E(R) (%))

10.6

Step-by-Step Calculation

01Canonical Law: ER = Rf + β × (Rm - Rf)

02Given Inputs (Base Units): Rf (%) = 4.2, β = 1.28, Rm (%) = 9.2

03Solve for E(R) (%) (Expected Cost of Equity): E(R) (%) = 10.6

Real-World Reference Values

Market Index Benchmark (β = 1.0)E(R) = Rm

Broad market portfolio carries beta of exactly 1.00

Equity Risk Premium (Rm - Rf)4.5% – 5.5%

Damodaran implied US equity risk premium range

Defensive Consumer / Utilitiesβ = 0.45 – 0.75

Lower cyclicality reduces required cost of equity

20-Row Comparison Table

Expected Cost of Equity (E(R) (%)) · Risk-Free Rate (Rf (%))

Compare across:

Capital Asset Pricing Model (CAPM) Calculator — Risk-Free Rate → Expected Cost of Equity
#	Risk-Free Rate (Rf (%))	Expected Cost of Equity (E(R) (%))	Δ %
01	1.554	11.3409	+6.99%
02	1.8635	11.2542	+6.17%
03	2.1729	11.1676	+5.35%
04	2.4824	11.0809	+4.54%
05	2.7919	10.9943	+3.72%
06	3.1014	10.9076	+2.90%
07	3.4108	10.821	+2.08%
08	3.7203	10.7343	+1.27%
09	4.0298	10.6477	+0.45%
10	4.2 Current	10.6	0.00%
11	4.6487	10.4744	-1.19%
12	4.9582	10.3877	-2.00%
13	5.2677	10.301	-2.82%
14	5.5772	10.2144	-3.64%
15	5.8866	10.1277	-4.46%
16	6.1961	10.0411	-5.27%
17	6.5056	9.9544	-6.09%
18	6.8151	9.8678	-6.91%
19	7.1245	9.7811	-7.73%
20	7.434	9.6945	-8.54%

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Frequently Asked Questions

What does an Asset Beta β of 1.28 mean?+

A beta of 1.28 indicates that for every 1% excess move in the broad equity market, the asset is expected to move 1.28% in the same direction.

How do I back out the market-implied beta from a target hurdle rate?+

Select β as the solved variable and enter your hurdle rate E(R), the current 10-year Treasury yield Rf, and expected market return Rm.

Why does CAPM only reward systematic beta risk?+

Idiosyncratic company-specific risk can be diversified away in a broad portfolio, so the market only prices non-diversifiable systematic risk β.