CAPM Calculator
Calculate the required return on equity using CAPM: risk-free rate + beta × equity risk premium. Used to estimate cost of equity for WACC and to assess whether a stock is fairly valued.
Risk premium for asset
6.60%
Required return
10.60%
How to use the capm calculator
Enter the risk-free rate (typically 10-year Treasury yield), the asset's beta, and the equity risk premium (long-run market return minus risk-free rate, often 4–6%).
Formula & explanation
Re = Rf + β × (Rm − Rf), where (Rm − Rf) is the equity risk premium.
Examples
Rf = 4%, β = 1.2, ERP = 5.5% → required return = 4% + 1.2 × 5.5% = 10.6%.
Frequently asked questions
- What's a typical equity risk premium?
- Damodaran's implied ERP for the US has hovered around 4–6% in recent years.
- Beta < 0?
- Yes — gold and some defensive stocks can have negative betas, implying required return below Rf.
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