1. What is the CAPM Expected Return?

The Capital Asset Pricing Model (CAPM) calculates the expected return of an investment based on its systematic risk (beta), the risk-free rate, and the expected market return. It's widely used for mutual fund analysis and portfolio management.

2. How Does the Calculator Work?

The calculator uses the CAPM formula:

Where:

• \( E(r) \) — Expected return (%)
• \( R_f \) — Risk-free rate (%)
• \( \beta \) — Beta coefficient (unitless)
• \( R_m \) — Expected market return (%)

Explanation: The formula calculates the appropriate required rate of return for an asset given its risk relative to the market.

3. Importance of CAPM Calculation

Details: CAPM helps investors determine if a mutual fund is appropriately priced given its risk level and serves as a benchmark for evaluating investment performance.

4. Using the Calculator

Tips: Enter risk-free rate (typically government bond yield), beta coefficient (measure of systematic risk), and expected market return. All values must be non-negative.

5. Frequently Asked Questions (FAQ)

Q1: What is a typical risk-free rate?
A: Usually the yield on 10-year government bonds, typically ranging from 1-5% depending on economic conditions.

Q2: How is beta calculated for mutual funds?
A: Beta is calculated by regressing the fund's returns against market returns. A beta of 1 means the fund moves with the market.

Q3: What market return should I use?
A: Typically the historical average market return (8-10% for broad market indices), or forward-looking estimates based on economic forecasts.

Q4: Are there limitations to CAPM?
A: Yes, CAPM assumes efficient markets, rational investors, and that beta fully captures risk, which may not always hold true.

Q5: How often should CAPM calculations be updated?
A: Regularly, as risk-free rates, beta coefficients, and market return expectations change over time with market conditions.