How to Calculate Excess Market Return

"Excess market return" refers to how much more an investment makes over either the risk-free rate or some index that measures the return of an entire market. The risk-free rate is the amount of return you would expect without any risk of losing your original investment. This rate is hypothetical, but investors usually use the rate on a 90-day U.S. Treasury bill because of its high security.

• 1

  Determine either the risk-free rate or the index rate of your fund. The risk-free rate is the three-month Treasury bill interest rate (see Resources section).

• 2

  Determine the return on your investment. You can quickly calculate this by dividing the amount of money your investment gained or lost during the year by the amount of money your investment was worth at the beginning of the year.

• 3

  Subtract the risk-free rate or your index fund's return from your actual return on investment to calculate the excess market return.