Capital Asset Pricing Model Calculator

✖The Risk Free Rate is the theoretical rate of return of an investment with zero risks.ⓘ Risk Free Rate [R_f]			+10% -10%
✖Beta on Investment measures the sensitivity of an investment's returns to changes in the overall market returns.ⓘ Beta on Investment [β_i]			+10% -10%
✖Expected Return on Market Portfolio is the weighted average rate of return for all the assets in the portfolio.ⓘ Expected Return on Market Portfolio [ER_m]			+10% -10%

✖Expected Return on Investment is a metric used to assess the potential profitability of an investment.ⓘ Capital Asset Pricing Model [ER_i]

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Formula

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Capital Asset Pricing Model

Formula

`"ER"_{"i"} = "R"_{"f"}+"β"_{"i"}*("ER"_{"m"}-"R"_{"f"})`

Example

`"159.715"="0.015"+"20"*("8"-"0.015")`

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Capital Asset Pricing Model Solution

STEP 0: Pre-Calculation Summary

Formula Used

Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate)
ER_i = R_f+β_i*(ER_m-R_f)
This formula uses 4 Variables

Variables Used

Expected Return on Investment - Expected Return on Investment is a metric used to assess the potential profitability of an investment.
Risk Free Rate - The Risk Free Rate is the theoretical rate of return of an investment with zero risks.
Beta on Investment - Beta on Investment measures the sensitivity of an investment's returns to changes in the overall market returns.
Expected Return on Market Portfolio - Expected Return on Market Portfolio is the weighted average rate of return for all the assets in the portfolio.

STEP 1: Convert Input(s) to Base Unit

Risk Free Rate: 0.015 --> No Conversion Required
Beta on Investment: 20 --> No Conversion Required
Expected Return on Market Portfolio: 8 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

ER_i = R_f+β_i*(ER_m-R_f) --> 0.015+20*(8-0.015)

Evaluating ... ...

ER_i = 159.715

STEP 3: Convert Result to Output's Unit

159.715 --> No Conversion Required

FINAL ANSWER

159.715 <-- Expected Return on Investment

(Calculation completed in 00.004 seconds)

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< 18 Capital Budgeting Calculators

Overall Cost of Capital

Go Overall Cost of Capital = (Market Value of the Firm’s Equity)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Required Rate of Return+(Market Value of the Firm’s Debt)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Cost of Debt*(1-Tax Rate)

Discounted Payback Period

Go Discounted Payback Period = ln(1/(1-((Initial Investment*Discount Rate)/Periodic Cash Flow)))/ln(1+Discount Rate)

Net Present Value (NPV) for even cash flow

Go Net Present Value (NPV) = Expected Cash Flow*((1-(1+Rate of Return)^-Number of Periods)/Rate of Return)-Initial Investment

Capital Asset Pricing Model

Go Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate)

Double Declining Balance Method

Go Depreciation Expense = (((Purchase Cost-Salvage Value)/Useful Life Assumption)*2)*Beginning PP&E Book Value

Modified Internal Rate of Return

Go Modified Internal Rate of Return = 3*((Present Value/Cash Outlay)^(1/Number of Years)*(1+Interest)-1)

Cost of Retained Earnings

Go Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate

After-Tax Cost of Debt

Go After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate)

Beginning Inventory

Go Beginning Inventory = Cost of Goods Sold-Purchases+Ending Inventory

Terminal Value using Perpetuity Method

Go Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate)

Trade Discount

Go Trade Discount = multi(List Price,Trade Discount Rate)

Expected Monetary Value

Go Expected Monetary Value = multi(Probability,Impact)

Accounting Rate of Return

Go Accounting Rate of Return = (Average Annual Profit/Initial Investment)*100

Inventory Carrying Cost

Go Inventory Carrying Cost = (Total Carrying Cost/Total Inventory Value)*100

Certainty Equivalent Cashflow

Go Certainty Equivalent Cashflow = Expected Cash Flow/(1+Risk Premium)

Payback Period

Go Payback Period = Initial Investment/Cashflow per Period

Terminal Value using Exit Multiple Method

Go Terminal Value = EBITDA at Last Period*Exit Multiple

Cost of Debt

Go Cost of Debt = Interest Expense*(1-Tax Rate)

Capital Asset Pricing Model Formula

Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate)
ER_i = R_f+β_i*(ER_m-R_f)

Capital Asset Pricing Model key components

Key components of the CAPM:

Risk Free rate: It is the theoretical return on an investment with zero risk. Typically, the yield on government bonds, such as U.S. Treasury bonds, is used as a proxy for the risk-free rate.

Market Risk Premium : This represents the excess return that investors expect to receive for taking on the additional risk of investing in the overall market instead of a risk-free asset. It reflects the compensation investors require for bearing systematic risk.

Beta: Beta measures the sensitivity of an investment's returns to changes in the overall market returns. A beta of 1 implies the investment moves in line with the market, while a beta greater than 1 suggests higher volatility, and a beta less than 1 implies lower volatility than the market.

The CAPM has its criticisms, including assumptions like a linear relationship between risk and return, the sole use of beta to measure risk, and the assumption that markets.

How to Calculate Capital Asset Pricing Model?

Capital Asset Pricing Model calculator uses Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate) to calculate the Expected Return on Investment, The Capital Asset Pricing Model formula is defined as a financial model that establishes a linear relationship between the expected return of an investment and its systematic risk. It is widely used in finance to estimate the expected return on an investment, taking into account its risk as measured by beta. Expected Return on Investment is denoted by ER_i symbol.

How to calculate Capital Asset Pricing Model using this online calculator? To use this online calculator for Capital Asset Pricing Model, enter Risk Free Rate (R_f), Beta on Investment (β_i) & Expected Return on Market Portfolio (ER_m) and hit the calculate button. Here is how the Capital Asset Pricing Model calculation can be explained with given input values -> 159.715 = 0.015+20*(8-0.015).

FAQ

What is Capital Asset Pricing Model?

The Capital Asset Pricing Model formula is defined as a financial model that establishes a linear relationship between the expected return of an investment and its systematic risk. It is widely used in finance to estimate the expected return on an investment, taking into account its risk as measured by beta and is represented as ER_i = R_f+β_i*(ER_m-R_f) or Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate). The Risk Free Rate is the theoretical rate of return of an investment with zero risks, Beta on Investment measures the sensitivity of an investment's returns to changes in the overall market returns & Expected Return on Market Portfolio is the weighted average rate of return for all the assets in the portfolio.

How to calculate Capital Asset Pricing Model?

The Capital Asset Pricing Model formula is defined as a financial model that establishes a linear relationship between the expected return of an investment and its systematic risk. It is widely used in finance to estimate the expected return on an investment, taking into account its risk as measured by beta is calculated using Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate). To calculate Capital Asset Pricing Model, you need Risk Free Rate (R_f), Beta on Investment (β_i) & Expected Return on Market Portfolio (ER_m). With our tool, you need to enter the respective value for Risk Free Rate, Beta on Investment & Expected Return on Market Portfolio and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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