How this calculator works
Estimate a required return for exposure to market risk using the capital asset pricing model. Use a risk-free rate and expected broad-market return for the same currency and horizon. A negative beta is allowed. Solving backwards requires a nonzero sensitivity to the variable being found.
Formula
Expected return = risk-free rate + beta × (market return - risk-free rate). Market premium = market return - risk-free rate; asset premium = beta × market premium.
Worked example
At a 3% risk-free rate, 8% expected market return and beta 1.2, the required return is 9%. A beta of 0.5 under the same assumptions gives 5.5%.
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Frequently asked questions
Is this a prediction of next year's return?
It is an equilibrium model based on assumptions, not a forecast guarantee. Realized returns can differ greatly.
What does beta measure?
It measures sensitivity to a chosen market benchmark. It does not measure all of a stock's volatility.
Why can some reverse calculations fail?
For beta 1, the risk-free rate cancels out; for beta 0, the market return cancels out. Such cases cannot identify the missing input uniquely.