In finance, the CAPM model (Capital Asset Pricing Model) describes the relationship between the systematic risk and the expected return of the assets.
Beta in the CAPM model is the criteria of the instability of the security and is calculated by how much the stock price changes with the return in the whole market.
When the beta is equal to 1, then the expected return on investment is equal to the market average. And when the beta is equal to -1, then the stock prices are less risky and unstable.
The formula for calculating CAPM model based risk premium of the assets and expected rate of return is as follows:
risk premium = beta * (Rm - Rf)
R = Rf + risk premium
- R - expected rate of return
- Rf - risk-free rate, which is taken as the yield on a government bond in the country
- Rm - broad market return
- Beta is the criteria of the market risk.
What can you do with CAPM Calculator?
- It helps to calculate the risk premium of the asset and rate of the return and helps to know the market risk of the assets.
- Users can see the accurate risk premium of the asset and expected rate of the return.
- This calculator helps to share your calculations by URL.