CAPM Beta Calculator











 

What is CAPM Beta Calculator?

A Capital Asset Pricing Model (CAPM) Beta Calculator is a tool used to estimate the beta of a security or portfolio using the CAPM formula. This calculator helps investors and analysts evaluate the potential risk and return of a stock by calculating its beta, a measure of volatility relative to the overall market.

Formula for CAPM Beta Calculator

The CAPM beta formula is used to calculate the beta of a security or portfolio. The formula is as follows:

B = (ERi – rf) / (ERm – rf)

Where:

  • B is the beta
  • ERi is the expected return of the investment
  • ERm is the expected return of the market
  • rf is the risk-free rate

Example:

Suppose the expected return of a stock is 12%, the expected return of the market is 10%, and the risk-free rate is 2%. Then, using the formula:

B = (12% – 2%) / (10% – 2%) = 1

Therefore, the beta of the stock is 1, indicating that the stock has the same level of volatility as the overall market.

How to Calculate

To use a CAPM Beta Calculator, you need to input the expected return of the investment, expected return of the market, and the risk-free rate. The calculator will then use the CAPM formula to calculate the beta of the investment.

FAQs

What does a beta value of 1 indicate?

A beta value of 1 indicates that the stock has the same level of volatility as the overall market.

What does a negative beta value indicate?

A negative beta value indicates that the stock moves in the opposite direction of the overall market.

Why is beta important?

Beta is an important measure of risk as it provides insight into the volatility of a stock relative to the overall market. It is used by investors and analysts to evaluate the potential risk and return of an investment.

Conclusion

A CAPM Beta Calculator is a useful tool for investors and analysts to evaluate the potential risk and return of an investment. By understanding the formula and how to use the calculator, you can make informed decisions about your investments.

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CAPM Beta Calculator

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