CAPM Expected Return mechanism

Model scope

The formula E(R)=Rf+β(Rm−Rf) is the standard single-factor CAPM expected-return formula. The specification is otherwise correct, but it is ambiguous whether rate inputs are decimal fractions or percentage points, so the panel needs an explicit unit convention and conversion/display rule. The honest educational-model label is appropriate; CAPM output is a model-implied expected return, not a guaranteed forecast.

No additional formula finding is recorded.

Units and conventions

• Rf and Rm must be expressed in the same units, either decimal fractions or percentage points; beta is dimensionless.
• The numeric input format is unspecified: for example, 0.05 can mean 5% as a decimal fraction, while 5 can mean 5 percentage points.
• Expected return is reported as a percentage; decimal-fraction results must be multiplied by 100 for display.

Inspectable vector

One of 4 source-bound review vectors:

{
  "inputs": {
    "risk_free_rate": 0.04,
    "beta": 1.2,
    "market_return": 0.1,
    "rate_unit": "decimal fraction"
  },
  "expected_outputs": {
    "expected_return_percent": 11.2
  },
  "working": "E(R) = 0.04 + 1.2 × (0.10 − 0.04) = 0.04 + 1.2 × 0.06 = 0.04 + 0.072 = 0.112 = 11.2%."
}

Failure boundary

BREAK_CLAIMED · SELF_FLAGGED

An extreme but syntactically numeric input produces a non-finite +Infinity result through floating-point overflow. A robust instrument should reject non-finite inputs or flag the non-finite output rather than display it as an expected return.

Other records

Sources and evidence

These pointers bind the page to evidence. They do not grant authority or collapse verification into deployment.

• VERIFIED_LEDGER.json
• evidence-tranche4/tranche4-results.json
• BOUNDARY_HAZARD_CATALOG.json