Cost of Equity Calculator
Estimate cost of equity with the Capital Asset Pricing Model (CAPM).
How to Use the Cost of Equity Calculator
Enter the risk-free rate, stock beta and expected market return. The calculator applies the CAPM formula to estimate the return shareholders may require for bearing equity risk.
Practical Example
With a 4% risk-free rate, beta of 1.2 and expected market return of 9%, estimated cost of equity is 10%.
Factors That Affect Cost of Equity
Risk-free yields, beta, market risk premium, leverage, business risk and investor expectations can change the estimate over time.
Frequently Asked Questions
What is the CAPM formula?
Cost of Equity = Risk-Free Rate + Beta × (Market Return − Risk-Free Rate).
What does beta measure?
Beta measures how strongly a stock has tended to move relative to the broader market.
Is CAPM a guaranteed return?
No. It is a model used to estimate required return, not an investment guarantee.
Methodology and Interpretation
CAPM estimates cost of equity from a risk-free rate plus beta times the market risk premium. The result is sensitive to the chosen market, measurement period, beta estimate and forward-looking assumptions, so it should be treated as a model-based estimate rather than an observed financing cost.