Description
Return marketExpectedReturn-minus-riskFreeRate and risk-free plus beta times that premium.
A financial model connects supplied rates, discount factors, cashflows or prices under a particular convention. A local identity or residual is not a complete valuation, an observed market relationship or a promise of future returns.
Return marketExpectedReturn-minus-riskFreeRate and risk-free plus beta times that premium.
When to use this tool
Use Capm Beta Risk Premium One Term when you need one transparent financial-model term.
How to use the tool and how it works
- Enter riskFreeRate, marketExpectedReturn, beta. Use the units and conventions below.
- Run the tool. Correct any format, range, or cross-field input error before interpreting the output.
- Read marketPremium, expectedReturn. Use the output convention below.
Return marketExpectedReturn-minus-riskFreeRate and risk-free plus beta times that premium.1
| Input field | Meaning and units | Accepted input |
|---|---|---|
| riskFreeRate | Risk Free Rate | Required. Finite number. |
| marketExpectedReturn | Market Expected Return | Required. Finite number. |
| beta | Beta | Required. Finite number. |
| Output field | Interpretation | Returned shape |
|---|---|---|
| marketPremium | Market Premium | Required. Finite number. |
| expectedReturn | Expected Return | Required. Finite number. |
{
"input": {
"riskFreeRate": 0.03,
"marketExpectedReturn": 0.08,
"beta": 1.2
},
"output": {
"marketPremium": 0.05,
"expectedReturn": 0.09
}
}Limitations and assumptions
- CAPM inputs are supplied expected returns on the same horizon and fractional basis. Beta is not estimated and the model does not promise realized returns or recommend an investment.
- Inputs must satisfy both the field types and the cross-field conditions above. Invalid input causes an error; a successful false flag or documented placeholder is a different result.
- Numeric calculations use binary floating point unless exact decimal-integer arithmetic is explicitly stated. No hidden measurement tolerance or decimal rounding is added; nonfinite or out-of-contract results are rejected. Numeric signed-zero results are exported as zero.
Alternative or Complementary methods
Use a complete model matching the instrument, cashflows and market conventions. Review compounding, timing, currency, uncertainty and omitted costs before using a local estimate in a financial decision.
References
Similar or alternative tools
- Risk Premium Contribution
Subtract reference return from asset return and multiply the premium by portfolioWeight.
- Factor Model One Exposure Return Term
Multiply factor return by current exposure and separately by exposureChange.