Cost of Equity Calculator (CAPM)

About this calculator

The cost of equity is the return a company theoretically must offer shareholders to compensate them for the risk of holding its stock, most commonly estimated using the Capital Asset Pricing Model (CAPM): Cost of Equity = Risk-Free Rate + Beta × (Market Return − Risk-Free Rate). The risk-free rate is typically a government bond yield, beta measures the stock’s volatility relative to the overall market, and the term in parentheses is the equity market risk premium.

Unlike the cost of debt, which is directly observable from a company’s interest rate on its loans and bonds, the cost of equity is never actually stated anywhere — it’s an implied, model-derived figure, which is why CAPM is the standard approach despite known limitations. Analysts use the cost of equity as a discount rate in valuation models and as a key input into the Weighted Average Cost of Capital (WACC), which blends the cost of equity and after-tax cost of debt to find a company’s overall cost of financing.