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.