CAPM Beta Calculator

Formula

The formula to calculate the CAPM beta is:

\[ B = \frac{ER_i - r_f}{ER_m - r_f} \]

Where:

B is the beta
ER_i is the expected return of the investment
ER_m is the expected return of the market
r_f is the risk-free return

CAPM Beta Definition

A CAPM beta is a coefficient used in the capital asset pricing model to describe the ratio of the return of an investment compared to the return of the market relative to a risk-free investment.

Example Calculation

Example:

Expected Return of Investment (ER_i): 12%
Expected Return of Market (ER_m): 8%
Risk-Free Return (r_f): 2%

Step 1: Calculate the beta:

\[ B = \frac{12 - 2}{8 - 2} = \frac{10}{6} \approx 1.67 \]