# Capital Asset Pricing Model(CAPM) Calculator

This small business tool is used to derive the cost of equity using the risk-free rate of return using the CAPM model.

# Results...

E(Ri) = Rf + [ E(Rm) - Rf ] × βi

E(Ri) = 2.5 + [ 7.5 - 2.5 ] × 1.25

Expected return on the capital asset (E(Ri): 8.75%

# Results...

Risk Free Rate of Return = (1+ Government Bond Rate)(1+Inflation Rate)

Risk Free Rate of Return = (1 + 3.25)(1 + 0.9)

Risk Free Rate of Return = 4.251.9

Risk Free Rate of Return = 2.237%

## How to calculate CAPM :

It is the relationship between the expected return and risk of investing in a security.The below formula is used to determines the expected return of a particular asset or investment.

CAPM Formula :

E(Ri) = Rf + [ E(Rm) - Rf ] × βi

Where,

E(Ri) - the expected return on the capital asset

Rf - the risk-free rate

E(Rm) - the expected return of the market

βi - the beta of the security i

Risk Free Rate of Return Formula :

Risk-free rate of return is an investment with zero risks.The risk-free rate is generally used is the United States 10 year government bond.

Risk Free Rate of Return = (1+ Government Bond Rate)(1+Inflation Rate)

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