Cost of Equity Calculator
Calculate using the Capital Asset Pricing Model (CAPM)
Cost of Equity
About CAPM
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. It is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.
Cost of Equity Calculator — What Is It and How Does It Work?
A cost of equity calculator helps estimate the return investors expect when they put money into a company. It reflects the minimum rate of return shareholders require for taking on the risk of owning stock. In essence, it’s the compensation the market demands in exchange for equity investment.
Understanding the cost of equity is critical for both investors and businesses. It helps evaluate how attractive or risky an investment is. The idea is simple:
More risk = higher expected return
Less risk = lower expected return
Why Use a Cost of Equity Calculator?
Companies raise funds from two major sources — debt and equity. Debt has an interest cost, while equity comes with a cost of its own: the expected return to shareholders. This “cost” may not always be visible, but it’s essential for financial planning, investment analysis, and corporate valuation.
When a company is funded through both debt and equity, it can use tools like the WACC calculator to determine the average cost of capital. However, the cost of equity must be calculated separately — and that’s where this calculator helps.
How to Calculate Cost of Equity (Using CAPM)
The Capital Asset Pricing Model (CAPM) is the most widely used method to estimate the cost of equity. It’s especially useful when a company does not pay dividends. Our cost of equity calculator is based entirely on this model.
The CAPM formula is:
Cost of Equity = Risk-Free Rate + Beta × (Market Return − Risk-Free Rate)
You’ll need:
Risk-Free Rate (Rf): The return on risk-free investments like government bonds
Market Return (Rm): The average expected return from the stock market
Beta (β): A measure of how much a company’s stock price fluctuates compared to the overall market
Why CAPM Matters
The CAPM model takes into account both systematic market risk and the individual risk of a company’s stock (via Beta). It’s widely trusted by investors, analysts, and CFOs to make sound financial decisions.
Using our calculator, you can instantly determine whether the return from a stock justifies the risk involved — all in one quick calculation.
Try Our Cost of Equity Calculator
Whether you’re analyzing investments, valuing a company, or comparing risk across stocks, our cost of equity calculator using the CAPM formula gives you a fast, reliable estimate. Just enter the values, and let the math work for you.