Home
Back
CAPM Monthly Expected Return Equation:
| From: | To: |
The CAPM (Capital Asset Pricing Model) Monthly Expected Return calculates the expected monthly return of an investment based on its systematic risk (beta), the risk-free rate, and the expected market return. It provides a monthly breakdown of the annual CAPM return.
The calculator uses the CAPM monthly equation:
Where:
Explanation: The equation converts the annual CAPM expected return to a monthly figure by dividing by 12, providing a more granular view of expected returns.
Details: Monthly expected return calculations are crucial for short-term investment planning, portfolio rebalancing decisions, and comparing investment performance on a monthly basis.
Tips: Enter risk-free rate as a percentage (e.g., 2.5 for 2.5%), beta coefficient (typically between 0.5-2.0), and expected market return as a percentage. All values must be valid numerical inputs.
Q1: Why calculate monthly instead of annual expected return?
A: Monthly calculations provide more frequent performance benchmarks and are useful for short-term investment strategies and monthly portfolio reviews.
Q2: What is a typical risk-free rate used in calculations?
A: Typically, the 10-year government bond yield is used as the risk-free rate, though shorter durations may be used for shorter investment horizons.
Q3: How is beta coefficient determined?
A: Beta is calculated through regression analysis of the security's returns against market returns, typically using 3-5 years of monthly data.
Q4: Are there limitations to the CAPM model?
A: Yes, CAPM assumes efficient markets, rational investors, and that beta fully captures risk, which may not always hold true in real markets.
Q5: Can this calculator be used for any type of security?
A: The calculator works best for stocks and equity securities where beta can be reasonably estimated. It may be less appropriate for fixed income or alternative investments.