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Calculate the market risk premium by subtracting the risk-free (Rf) rate from the market return (Rm). The expression for the market risk premium is Rm-Rf.
Example of CAPM. The risk-free rate is 2% and the beta (risk measure) of a stock is 2. The expected market return over the period is 10%, so that means that the market risk premium is 8% (10% - 2%) after subtracting the risk-free rate from the expected market return. Plugging in the preceding values into the CAPM formula above, we get an expected return of 18% for the stock: 18% = 2% + 2 x (10%-2%)