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:

K_c   =   R_f   +   beta x ( K_m - R_f )

In this formula, K_c stands for the risk adjusted discount;
R_f is the rate in an investment such as cash, which is free of risk;
K_mis 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.

Benchmark Return Rates
Return available on an appropriate market benchmark investment (like the S&P 500):	%
Return available on a risk-free investment (cash, or government bond):	%
Risk Factor
Your investment's Beta (relative to the market benchmark above):
Results
Risk-adjusted discount rate:	%