CAPM expected return: Building a CAPM Return Assumption
CAPM combines a risk-free rate with a beta-scaled market risk premium. The result is a model-based required or expected return, not a forecast delivered by live market data.
Use the CAPM expected return Calculator to enter your own figures and compare the result with the worked example below.
CAPM expected return formula
Expected return = Risk-free rate + β×(Market return − Risk-free rate)
Worked example
| Item | Example value |
|---|---|
| Risk-free rate | 3 % |
| Beta | 1.2 beta |
| Market return | 8 % |
| CAPM expected return | 9% |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
Use consistent horizons and make the market premium explicit. Different assumptions can produce materially different estimates.
Related calculations
Method and further reading
The example follows the FinMathly calculator method. For broader background, see Investor.gov: Introduction to investing. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
Featured photograph: Pexels.