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**How to calculate CAPM (capital assets pricing model) in Excel** sheet

So, in order to calculate CAPM, you need to use the **formula in excel **as;

=(Risk-free rate of interest/return **(Rf)** + Beta **(β) **x (Expected return of market **E(Rm)** – Risk-free rate of interest/return **(Rf)**)

You can see in the **excel sheet example **

Where;

**E4 **= Risk-free rate of interest/return (Rf)

**E6 **= Beta (β)

**E8 **= Expected return of market E(Rm)

In this case, **formula is used to calculate CAPM excel **as follows:

=(E4+E8*(E6-E4)) |

**Definition of CAPM**

CAPM or capital assets pricing model recognizes the relationship between expected return and risk to evaluate financial security. Thus, the capital assets pricing model determined the expected return on financial security investment. if the expected return is higher than the required rate; financial security accepted otherwise rejected.

This article will identify and use the **CAPM Calculator Excel **as example and template in simple steps.

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**Capital Asset Pricing Model (CAPM) Formula**/Equation

Where

**ER** = Expected return on a financial security investment

**Rrf **= Risk-free rate of return

**β** = Investment beta

**Rm** = Expected return on a market

**(Rm – Rrf)** = Market risk premium

Firstly, you need to put desire data into the columns such as Risk-free rate of interest/return **(Rf)**; Beta (**β**); Expected return of market **E(Rm)** to calculate the **CAPM**.

Enter the desire values into the respective fields as shown in the above example.

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**Download template file of CAPM Excel ****Calculator**

**Calculator**

**CAPM assumptions**

There are some basic assumptions of CAPM:

- The security financial market is highly efficient, sophisticated, and competitive, where informed sellers and buyers function.
- Markets are generally considered as risk-averse.
- A higher expected return would be required by the investor in terms of risk premium to take an additional risk for.
- It is assumed that there is no cost of trading, regulations, or taxes.

**What is difference between cost of capital, WACC and CAPM cost of equity**

The cost of equity capital is calculated with CAPM formula. WACC equation highlights the value of the cost of equity plus the cost of debt securities. Therefore, CAPM calculates the cost of equity capital that is essential to measure the value of WACC.

CAPM has a very important role to play in selecting the portfolio investment, which will be used to calculate the cost of equity, while the CAPM is used in WACC equation for equity investment appraisal purposes.

**Conclusion**

The cost of equity is an opportunity cost that investors bear additional risk to attain desired level of expected return.

Hence, the fund manager must ensure the equity stock return is higher than the cost of equity or at least equates to the cost of equity in order to satisfy the investors.