Discount Rate Calculator (CAPM)
The right discount rate for your DCF valuation.
Inputs
Risk-free rate
Also called: Rf
Where to find it: Yield on 10-year government bonds (Bund, US Treasury).
How to derive: Use the current 10-year government bond yield.
Beta
Also called: β, market beta
Where to find it: On any stock stats page (Yahoo Finance: “Beta”).
How to derive: Statistical: how much the stock moves vs. the market (1.0 = same as market).
Market risk premium
Also called: Equity risk premium
Where to find it: Long-run estimate (Damodaran publishes it yearly).
How to derive: Expected market return − risk-free rate. Typically 4.5–6%.
Size / extra premium
Also called: Size premium
Where to find it: Optional add-on for small/illiquid firms.
How to derive: Extra return investors demand for small companies (often 1–3%). Leave 0 if unsure.
Result, live
Our calculator deliberately dampens the beta effect (quarter weight, hard caps) - raw CAPM overshoots at extreme betas.
The discount rate is the rate you use to bring future cash flows in a DCF back to today. CAPM derives it: the risk-free rate plus a risk premium scaled by the stock's beta. This calculator gives you the value together with a sensitivity band.
How the formula works
The market risk premium is added to the risk-free rate, weighted by beta; a size premium can be added optionally:
Example: 4.2% + 1.1 × 5.5% = 10.3%. The low and high bands show how strongly the result reacts to a beta uncertainty of ±0.2 (about 9.2% to 11.4%).
How to read the result
The result is the discount rate for your valuation. For context:
- Around 8–11% — the usual range for a normal stock.
- Below ~7% — very defensive/low beta; do not underestimate the risk.
- Above ~12% — high beta/risky; future cash flows are discounted hard and fair value drops.
What to watch out for
- Beta is noisy and backward-looking — it can depend on the measurement window.
- The rate and premium are assumptions. Small changes move fair value noticeably.
- Our calculator dampens the beta effect (quarter weight, hard caps) — raw CAPM overshoots at extreme betas.