How to Calculate Expected Return Using CAPM
As a retail investor, you probably ask: "What return should I expect from this stock given its risk?" The Capital Asset Pricing Model (CAPM) gives you a data-backed answer.
The Formula
Expected Return = Risk-Free Rate + Beta × (Market Return − Risk-Free Rate)
- Risk-Free Rate: Current 10-year US Treasury yield (~4.5% as of 2025)
- Beta: How much a stock moves relative to the market (1.0 = same as S&P 500)
- Market Return: Long-term average of S&P 500 (~10%)
Example: Apple (AAPL) has a beta of 1.20. Expected return = 4.5% + 1.20 × (10% − 4.5%) = 11.1%
That means Apple should return ~11.1% annually based on its risk. If it's underperforming or overvalued, that's a red flag.
Why Use This Spreadsheet?
Manually calculating for 10+ stocks is tedious. I built a Google Sheets template that:
- Auto-calculates expected return for up to 50 stocks
- Color-codes results: green (strong), yellow (neutral), red (avoid)
- Compares CAPM with dividend yield + growth for margin of safety
Get the Free Version
I've made a free single-stock CAPM calculator (no signup needed). For the full 50-stock tracker with charts and margin-of-safety analysis, check out the paid version.
This is not financial advice — just a tool to help you make better-informed decisions.
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