A Cost of Equity Calculator helps estimate the return required by equity investors. This can be calculated using models like the Capital Asset Pricing Model (CAPM).
The Cost of Equity (\( R_e \)) is calculated using the CAPM formula:
\[ R_e = R_f + \beta (R_m - R_f) \]
where:
- \( R_e \) = Cost of Equity
- \( R_f \) = Risk-Free Rate
- \( \beta \) = Beta
- \( R_m \) = Market Return
Using the Calculator
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Enter the following values into the respective input fields:
- Risk-Free Rate: 2
- Beta: 1.5
- Market Return: 8
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Click the "Calculate Cost of Equity" button.
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The calculator will display the result:
- Cost of Equity: 11.00%
This calculator helps businesses and investors estimate the return required by equity investors based on the risk-free rate, beta, and market return using the CAPM model. Adjusting the input values allows users to simulate different scenarios and understand the impact on the cost of equity.
