Calculate expected return using the Capital Asset Pricing Model with risk-free rate, beta, and market risk premium inputs.
This tool applies the CAPM formula: expected return equals the risk-free rate plus beta multiplied by the market risk premium. Enter a risk-free rate (typically a short-term government bond yield), a beta coefficient (the asset's volatility relative to the overall market), and a market risk premium (expected market return minus the risk-free rate), and it returns a single expected-return percentage. The most common mix-up is entering the market's total expected return in the risk premium field instead of the return already net of the risk-free rate. With a positive beta and a positive risk-free rate, this silently inflates the result; with a negative beta it does the opposite and understates the result, and with a beta of zero it has no effect at all.
A concrete input and expected output from the current implementation.
Input
Risk-free rate: 4%, Beta: 1.2, Market risk premium: 5.5%
Expected output
Expected return: 10.6%
10.6% = 4% + (1.2 x 5.5%); the beta of 1.2 scales the 5.5% premium up to 6.6%, which is then added to the 4% risk-free rate.
The calculator computes E(R) = Rf + beta x MRP, where Rf is the risk-free rate, beta measures the asset's sensitivity to market-wide moves, and MRP is the market risk premium. It multiplies beta by the premium and adds the risk-free rate. There is no adjustment for any other risk factor, so the entire output reduces to combining three numbers linearly.
Beta acts purely as a multiplier on the market risk premium: a beta of 0 returns exactly the risk-free rate, a beta of 1 returns the risk-free rate plus the full market risk premium, and a beta above 1 amplifies the premium rather than capping it. Because the formula is linear, halving beta halves the premium's contribution to the result, and a negative beta subtracts rather than adds a scaled premium, pulling the expected return below the risk-free rate.
Enter the premium: expected market return minus the risk-free rate, not the market return itself. If you only know the market's expected return, subtract your risk-free rate from it first. Entering the raw market return without subtracting anything will overstate the expected return the tool reports whenever beta and the risk-free rate are both positive; with a negative beta the same mistake understates it instead.
Yes, the formula accepts any real beta. A negative beta, seen occasionally in assets like gold miners or inverse funds, produces an expected return below the risk-free rate. A beta above 2 is uncommon but valid for highly volatile or leveraged assets.
The example and behavioral notes were checked against the browser implementation. Standards and primary references below define the relevant format, formula, or platform behavior.
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