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Cost Of Equity Calculator

Estimated Cost Of Equity (%): 0.00

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    The cost of equity is a critical financial metric that estimates the returns expected by shareholders. This calculator simplifies the process by allowing you to input the risk-free rate, equity beta, and market risk premium to calculate the cost of equity for your firm.

    Using the Cost Of Equity Calculator

    1. Enter the risk-free rate, typically the yield on government bonds.

    2. Provide the equity beta, a measure of the stock's volatility relative to the market.

    3. Input the market risk premium, which is the expected return of the market above the risk-free rate.

    4. Click 'Calculate Cost Of Equity' to see your estimated cost of equity.

    Cost Of Equity Formula

    The formula for calculating the cost of equity is:

    Cost Of Equity = Risk-Free Rate + (Equity Beta × Market Risk Premium)

    Example Calculation

    If the risk-free rate is 3%, the equity beta is 1.2, and the market risk premium is 5%, the calculation would be:

    Cost Of Equity = 3% + (1.2 × 5%) = 3% + 6% = 9%

    Why Understanding Cost Of Equity Is Important

    Calculating the cost of equity helps investors gauge the expected return on their investment. It plays a vital role in financial decision-making and investment analysis.