Cost of equity
The return equity investors require for holding the risk. It is usually estimated with the capital asset pricing model as the risk-free rate plus beta times the equity market premium.
Cost of equity in round numbers
With a risk-free rate of 4 percent, a beta of 1.2 and an equity market premium of 6 percent, the cost of equity comes to about 11.2 percent.
| Risk-free rate 4% | |
| + | Beta 1.2 times a 6% premium |
| = | Cost of equity 11.2% |
Terms Related to Cost of equity
CAPM & beta · WACC · Discount rate · Unlevered beta · All of the glossary