CAPM Calculator
Before you can effectively use a CAPM calculator, you need to know what it can do for you. CAPM stand for Capital Asset Pricing Model. This type of calculator allows you to use a varying discount rate to compensate for risk as opposed to building a margin of safety into your numbers.
To better understand CAPM, here is the formula that is used:
Kc = Rf + beta x ( Km - Rf )
In this formula, Kc stands for the risk adjusted discount;
Rf is the rate in an investment such as cash, which is free of risk;
Kmis the return rate based on a traditional market such as the S&P 500.
The idea behind using this calculator is that you should require higher returns in order for a higher risk level.
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