Use this cost of equity calculator to quickly determine the minimum rate of return required by your investors.
Cost of Equity Calculator
Use this calculator to determine the cost of equity for a company using the Capital Asset Pricing Model (CAPM). To use the calculator, input the Risk Free Rate, the Beta Coefficient for the company, and the Expected Market Return.
How to Use the Calculator
- Enter the Risk Free Rate in percentages (without the % sign).
- Enter the company’s Beta Coefficient.
- Enter the Expected Market Return in percentages (without the % sign).
- Click on the “Calculate” button to get the result.
How the Calculator Works
The Cost of Equity Calculator uses the Capital Asset Pricing Model (CAPM) formula:
Cost of Equity = Risk Free Rate + (Beta * (Market Return – Risk Free Rate))
This formula represents the expected return on investment for a particular stock based on the risk-free return, the stock’s beta value, and the overall market return.
Limitations of the Calculator
This calculator provides an estimate of the cost of equity based on the CAPM. However, it relies on the accuracy of the input values. The actual cost of equity may vary due to factors that are not accounted for in the CAPM, such as transaction costs, taxes, and anomalies in the market. Furthermore, Beta is based on historical data and cannot predict future risk accurately.