Cost of Equity Calculator

About this calculator

The Capital Asset Pricing Model (CAPM) estimates the return shareholders require for the risk of holding a company's stock: cost of equity = risk-free rate + beta × (market return − risk-free rate), where beta measures how much a stock's price swings relative to the overall market (beta of 1 moves with the market, above 1 amplifies market moves, below 1 dampens them).

Corporate finance teams and equity analysts use cost of equity as one input into the weighted average cost of capital (WACC), which in turn discounts future cash flows in a company valuation or determines whether a project's expected return clears the bar shareholders demand. A higher beta or a wider gap between the market return and the risk-free rate both push the required return up, since investors demand more compensation for taking on more risk.

This calculator takes the risk-free rate, beta and expected market return and returns the CAPM cost of equity.