CAPM & Expected NPV

Calculates a CAPM required return from the risk-free rate, beta, and market risk premium, plus a probability-weighted expected NPV across bull, base, and bear scenarios. Inputs are the three CAPM parameters and a probability and NPV for each scenario.

Interactive Tool

CAPM & Expected NPV

CAPM required return

Risk-free rate

Beta

Market risk premium

Required return

12.00%

3.00% + 1.50 × 6.00%

Expected NPV (probability-weighted)

Bull case

Probability

Scenario NPV

Base case

Probability

Scenario NPV

Bear case

Probability

Scenario NPV

Expected NPV = Σ (Probability × Scenario NPV)

$1,000,000

A positive expected NPV is necessary but not sufficient: a wide bull-to-bear spread means real risk, which an incremental reward must compensate (Law 7).

Learn the concept

This calculator comes from the free Real Estate Finance course, where the concept is taught with readings, worked examples, and practice questions.

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Built by Devon Coombs, CPA, MBA, Teaching Professor of Finance at Santa Clara University.