Capital Asset Pricing Model (CAPM) Template

What is the Capital Asset Pricing Model (CAPM)?

The CAPM can help determine the required or expected rate of return on an investment, based on its level of risk. The theory behind it suggests that rational investors demand higher returns for taking on perceived higher levels of risk. The model considers both the risk-free rate of return and the risk premium associated with the overall market. 

Download the Free CAPM Template 

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The CAPM Formula: 

The CAPM formula is expressed as follows: 

Where: 

• Ke is the required or expected rate of return on the investment (Cost of Equity) 

• Rf is the Risk-Free Rate of return, typically represented by the yield on government bonds 

• β (Beta) is a measure of the investment’s systematic risk relative to the overall market 

• (Rm – Rf) is the Market Risk Premium, which represents the additional return investors expect for investing in riskier assets over risk-free assets 

Steps for Using the CAPM Template 

• Download the free CAPM Template 

• Input the required financial data, such as the beta, risk-free rate, and the expected market return of the investment or company 

• The template will automatically calculate the cost of equity using the CAPM formula 

• Review the calculated cost of equity, which represents the expected return required by shareholders 

• Adjust the input data, such as the risk-free rate or beta, to perform scenario analysis and evaluate the impact on the cost of equity 

• The template can be used to compare companies either in different markets, sectors or with varying beta 

What You’ll Get with the CAPM Template 

• Automated Cost of Equity Calculation
  The template automatically calculates the cost of equity using the CAPM formula, saving you time and reducing the risk of errors. 

• Scenario Analysis
  It enables investors to perform sensitivity analysis by adjusting inputs like the risk-free rate, expected market return, or beta, and observe the impact on the cost of equity. 

• Integration with WACC Calculation
  The template allows the easy incorporation of the calculated cost of equity into the weighted average cost of capital (WACC) calculation for comprehensive financial modeling and valuation. 

• Customizable Inputs
  Tailor the template to your specific needs by adjusting the risk-free rate, expected market return, and beta to reflect your investment or company’s circumstances. 

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