BA II Plus: CAPM Step by Step

TL;DR

CAPM required return equals the risk-free rate plus beta times the market risk premium. Store the market risk premium if it is reused across several assets.

Formula Reference

E(Ri) = Rf + beta_i x [E(Rm) - Rf]

BA II Plus Keystrokes

1. Compute market return minus risk-free rate
2. Press STO 1
3. Multiply beta by RCL 1
4. Add risk-free rate
5. Repeat for other assets if needed

Worked Example

• Rf = 3 percent, market return = 9 percent, beta = 1.25.
• Required return = 3 + 1.25 x (9 - 3) = 10.5 percent.
• Store 6 as the market risk premium if solving multiple securities.

Common Mistakes

• Using standard deviation instead of beta.
• Forgetting to subtract the risk-free rate from market return.
• Adding beta directly to the risk-free rate.

Related Guides

• CFA Level I Portfolio Management Calculations - Expected return, portfolio risk, CAPM, Sharpe ratio, and performance measurement calculations.
• CFA Level I Portfolio Management Formula Sheet - Public formula sheet for expected return, variance, CAPM, Sharpe ratio, and performance measurement.
• BA II Plus: Portfolio Return Step by Step - Calculate weighted-average portfolio return using BA II Plus memory keys.