Cost of Equity Calculator
Estimate the required return on equity using CAPM
Result
Cost of Equity (Ke) = 0%
The Cost of Equity is the return a company must offer investors to compensate for the risk of investing in its stock (instead of risk-free assets). It’s a key metric in financial valuation, capital budgeting, and investment analysis.
Below, I’ll explain:
- What is Cost of Equity?
- Key Calculation Methods (CAPM & Dividend Discount Model)
- Free Cost of Equity Calculator (HTML/CSS/JS)
- How to Use It
What is Cost of Equity?
The Cost of Equity (Ke) represents the expected return shareholders demand for holding a company’s stock. It’s used in:
- Discounted Cash Flow (DCF) Valuation
- Weighted Average Cost of Capital (WACC)
- Comparing Investment Opportunities
How to Calculate Cost of Equity
Two primary methods:
1. Capital Asset Pricing Model (CAPM)
The most widely used formula:
Cost of Equity (Ke) = Risk-Free Rate + (Beta × Market Risk Premium)
- Risk-Free Rate (Rf): Return on risk-free assets (e.g., 10-year U.S. Treasury bonds).
- Beta (β): Measures stock volatility vs. the market (S&P 500).
- Market Risk Premium (Rm - Rf): Expected market return minus risk-free rate.
2. Dividend Discount Model (DDM)
For dividend-paying stocks:
Cost of Equity (Ke) = (Dividend per Share / Current Stock Price) + Dividend Growth Rate
How to Use the Calculator
- Enter the Risk-Free Rate (e.g., 2.5% for 10-year Treasury bonds).
- Input Beta (β) (Find it on Yahoo Finance or Bloomberg).
- Provide Expected Market Return (Historically ~8% for S&P 500).
- Click "Calculate" to see the Cost of Equity (Ke).
Key Features of This Calculator
✅ CAPM-Based Calculation (Industry Standard)
✅ Mobile-Friendly & Clean UI
✅ Instant Results
✅ Easy to Embed in Websites (Works with Elementor, WordPress, etc.)
When to Use Cost of Equity?
- Valuing a Company (DCF Analysis)
- Determining WACC for Investment Decisions
- Comparing Stock vs. Bond Investments