Question:

How do you calculate cost of equity?

Answer hidden.

Answer:

You calculate cost of equity using the Capital Asset Pricing Model (CAPM)

CAPM:
Cost of equity = risk-free rate + ( Beta * Equity Risk Premium )

The risk-free rate represents the yield on a 10-year or 20-year US Treasury bond.

Beta is calculated based on the “riskiness” of Comparable Companies.

The Equity Risk Premium is the % by which stocks are expected to out-perform “risk-less” assets.

Question:

How do you calculate cost of equity?

Answer:

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