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To calculate a CAPM expected return in Excel, enter the risk-free rate, beta, and expected market return, then use =B2+B3*(B4-B2). If you already have the market risk premium—not the market return—use =B2+B3*B4. To estimate beta from historical data, use Excel’s SLOPE function on matched asset and market returns.
Enter the CAPM formula in Excel
CAPM estimates an asset’s expected return as the risk-free rate plus beta multiplied by the market risk premium:
E(Ri) = Rf + βi × (E(Rm) − Rf)
In this equation, E(Ri) is the asset’s expected return, Rf is the risk-free rate, βi is the asset’s beta, and E(Rm) is the expected market return. The market risk premium is the expected market return minus the risk-free rate. OpenStax explains the equation and how beta scales that premium in its Principles of Finance CAPM section.
Set up the worksheet
| Cell | Input |
|---|---|
| B2 | Risk-free rate |
| B3 | Asset beta |
| B4 | Expected market return |
With the market return in B4, enter this formula in another cell:
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=B2+B3*(B4-B2)
If B4 contains the market risk premium directly, rather than the full market return, use:
=B2+B3*B4
Keep the rates in consistent units. For example, enter 5% as 5% or 0.05, not as 5 alongside decimal inputs; otherwise the calculation will be off by a factor of 100.
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Estimate beta from historical returns
Historical beta is the slope of asset returns against corresponding market returns. Put each series in its own column, with one observation per date and the same dates and frequency in both columns. For example, if asset returns are in C2:C61 and market returns are in D2:D61, calculate beta with:
=SLOPE(C2:C61,D2:D61)
Excel defines SLOPE(known_y's,known_x's) as the slope of a linear regression through paired data. Put the asset-return range first (the known y values) and the market-return range second (the known x values). See Microsoft’s SLOPE function documentation.
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Alternative: covariance divided by variance
The same one-factor historical beta can be expressed as the covariance of asset and market returns divided by the variance of market returns. For sample data, use:
=COVARIANCE.S(C2:C61,D2:D61)/VAR.S(D2:D61)
COVARIANCE.S calculates sample covariance and VAR.S calculates sample variance, as described in Microsoft’s COVARIANCE.S documentation and VAR.S documentation. Using population covariance and population variance together produces the same ratio for the same observations because their common divisor cancels. The slope formula is usually the clearest starting point; the ratio makes the statistical meaning of beta more explicit. Microsoft retains the older COVAR function for backward compatibility and recommends COVARIANCE.P or COVARIANCE.S instead; see its COVAR documentation.
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Check the data before trusting the result
- Pair the same dates: Each asset return must match the market return for the same date, and both ranges must have the same number of observations. Mismatched range sizes can produce errors in Excel’s
SLOPEandCOVARIANCE.Sfunctions. - Use a consistent frequency and return convention: Do not pair daily asset returns with monthly market returns. Choose simple returns or another convention and apply it to both series.
- Handle missing data deliberately: Excel’s
COVARIANCE.Signores text and empty cells in its arrays but includes zero observations. A blank that represents missing data should not be converted into a zero return. - Know whether you have a market return or a premium: Subtract the risk-free rate inside the CAPM formula only when the input is the full market return. If the input already is the premium, do not subtract the risk-free rate again.
Choose inputs that fit the asset and purpose
CAPM gives a calculation framework, not a universal choice of inputs. You need to decide which risk-free proxy and market index are appropriate, whether to use historical or forecast returns, and what estimation window and return frequency make sense for the asset and purpose. Keep geography, currency, dates, and return periods aligned; choices such as daily versus monthly observations can change the estimated beta.
OpenStax illustrates one U.S.-oriented historical example using average S&P 500 returns of 11.64% and average U.S. Treasury bill returns of 3.36%. With a beta of 1.39, its example yields a 14.87% expected return for Delta Air Lines. These are figures from OpenStax’s 2022 educational example, not current input recommendations; see the source example.
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Interpret the output as an estimate
The result depends on the beta estimate and on the risk-free rate, market proxy, market premium, and time horizon you choose. A beta calculated from historical returns and a future market premium are estimates or assumptions; CAPM does not guarantee the return an asset will realize.
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