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Capital Asset Pricing Model Formula

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Expected Return on Investment is a metric used to assess the potential profitability of an investment. Check FAQs

ER i = R f + β i \cdot (ER m - R f)

ER_i - Expected Return on Investment?R_f - Risk Free Rate?β_i - Beta on Investment?ER_m - Expected Return on Market Portfolio?

Capital Asset Pricing Model Example

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Here is how the Capital Asset Pricing Model equation looks like with Values.

Here is how the Capital Asset Pricing Model equation looks like with Units.

Here is how the Capital Asset Pricing Model equation looks like.

159.715 = 0.015 + 20 \cdot (8 - 0.015)

159.715 = 0.015 + 20 \cdot (8 - 0.015)

159.715 = 0.015 + 20 \cdot (8 - 0.015)

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Capital Asset Pricing Model Solution

Follow our step by step solution on how to calculate Capital Asset Pricing Model?

FIRST Step Consider the formula

ER i = R f + β i \cdot (ER m - R f)

Next Step Substitute values of Variables

∴

ER i = 0.015 + 20 \cdot (8 - 0.015)

Next Step Prepare to Evaluate

∴

ER i = 0.015 + 20 \cdot (8 - 0.015)

LAST Step Evaluate

∴

ER i = 159.715

Capital Asset Pricing Model Formula Elements

Variables

Expected Return on Investment

Expected Return on Investment is a metric used to assess the potential profitability of an investment.

Symbol: ER_i

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Expected Return on Investment

Risk Free Rate

The Risk Free Rate is the theoretical rate of return of an investment with zero risks.

Symbol: R_f

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Risk Free Rate

Beta on Investment

Beta on Investment measures the sensitivity of an investment's returns to changes in the overall market returns.

Symbol: β_i

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Beta on Investment

Expected Return on Market Portfolio

Expected Return on Market Portfolio is the weighted average rate of return for all the assets in the portfolio.

Symbol: ER_m

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Expected Return on Market Portfolio

Other formulas in Capital Budgeting category

Go Payback Period

PBP = \frac{Initial Invt}{C f}

Go Cost of Retained Earnings

C RE = (\frac{D}{P c}) + g

Go Cost of Debt

R d = Int.E \cdot (1 - T r)

Go After-Tax Cost of Debt

ATCD = (R f + CS P) \cdot (1 - T r)

How to Evaluate Capital Asset Pricing Model?

Capital Asset Pricing Model evaluator uses Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate) to evaluate the Expected Return on Investment, The Capital Asset Pricing Model formula is defined as a financial model that establishes a linear relationship between the expected return of an investment and its systematic risk. It is widely used in finance to estimate the expected return on an investment, taking into account its risk as measured by beta. Expected Return on Investment is denoted by ER_i symbol.

How to evaluate Capital Asset Pricing Model using this online evaluator? To use this online evaluator for Capital Asset Pricing Model, enter Risk Free Rate (R_f), Beta on Investment (β_i) & Expected Return on Market Portfolio (ER_m) and hit the calculate button.

FAQs on Capital Asset Pricing Model

What is the formula to find Capital Asset Pricing Model?

The formula of Capital Asset Pricing Model is expressed as Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate). Here is an example- 159.715 = 0.015+20*(8-0.015).

How to calculate Capital Asset Pricing Model?

With Risk Free Rate (R_f), Beta on Investment (β_i) & Expected Return on Market Portfolio (ER_m) we can find Capital Asset Pricing Model using the formula - Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate).

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Capital Asset Pricing Model Formula

Capital Asset Pricing Model Example

Capital Asset Pricing Model Solution

Capital Asset Pricing Model Formula Elements

Other formulas in Capital Budgeting category

How to Evaluate Capital Asset Pricing Model?

FAQs on Capital Asset Pricing Model

Variable Name