CAPM Calculator
CAPM prices risk with one line: an investment should return the risk-free rate plus a premium proportional to its systematic risk (beta). It is the standard way to derive the cost of equity — the discount rate a DCF needs — and a sanity check on whether a stock's likely return justifies its volatility.
Enter the risk-free rate (10-year G-sec yield), the stock's beta and your expected market return. The calculator returns the expected/required return and the equity risk premium embedded in your inputs.
How it works
- Expected return = risk-free rate + beta × (market return − risk-free rate).
- Beta measures co-movement with the market: 1 = moves with it, 1.5 = amplifies it by half, 0.5 = dampens it.
- The result doubles as the discount rate for that stock's DCF (see the intrinsic value calculator).
Frequently asked questions
What risk-free rate should I use for India?
The 10-year government bond yield — around 6.5–7.5% in recent years (check the current level; it moves). Use the same currency and horizon as your cash flows: rupee cash flows discount off the Indian G-sec, not US Treasuries.
Where do I find a stock's beta?
Most terminals, screeners and broker research publish it (regression of the stock's returns vs Nifty, usually 1–5 years of data). Betas are estimates that drift with the window and index chosen — treat 1.2 vs 1.3 as the same number, and be suspicious of betas on thinly-traded small caps.
What market return should I assume?
Long-run Indian equity returns have averaged roughly 11–13% nominal, implying an equity risk premium of 4–6% over G-secs. Using 15%+ because recent years were good bakes cycle-peak optimism into every valuation downstream of it.
What are CAPM's known weaknesses?
Beta measures past co-movement, not business risk — a stable business with a jumpy stock gets punished, and vice versa. Practitioners use CAPM because it is disciplined and comparable, then adjust judgment-side: many value investors simply use a fixed hurdle (say 12–15%) instead. Both approaches beat improvising a discount rate per stock to make the answer fit.
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This tool is an educational estimate, not investment or tax advice. Rates and rules change — verify current figures and consult a professional before acting.