Cost of Equity Calculator

Estimate cost of equity with CAPM or a direct required return using risk-free rate, beta, and equity market premium.

Last reviewed May 27, 2026 by CalcMastery Editorial Team; Reviewed by CalcMastery Finance Review Team

Cost of Equity Calculator

Estimate the cost of equity (Re) using multiple methods: CAPM, Dividend Discount Model (DDM), Bond Yield + Risk Premium, or a Weighted blend.

CAPM (Market Return)CAPM (Risk Premium)DDMBond + RPWeighted
%

Typically a long‑term government bond yield (e.g., 10‑year).

Sensitivity of the asset to market movements (market β = 1).

%

Long‑run expected market return (e.g., 7%–10%).

%

Excess market return over the risk‑free rate.

$

Current stock price used for yield calculation.

$

Expected next annual dividend per share. If provided, used directly.

$

Optional: last annual dividend per share. If D1 is blank, we infer D1 = D0 × (1 + g).

%

Long‑term dividend growth rate.

%

Yield on a comparable‑risk corporate bond.

%

Firm‑specific risk premium added to bond yield.

%

Weight given to CAPM estimate.

%

Weight given to DDM estimate.

%

Weight given to Bond + Risk Premium estimate.

Results

  • Cost of Equity (Re)— %
  • Method Used—
  • Risk‑Free Rate (Rf)— %
  • Market Risk Premium (Rm − Rf)— %
  • Beta Contribution (β × Premium)— %
  • Implied / Entered Market Return (Rm)— %
  • Dividend Yield (D1 / P0)— %
  • Growth (g)— %
  • Re if Rf − 10%— %
  • Re if Rf + 10%— %
  • Re if β − 10%— %
  • Re if β + 10%— %

Enter your inputs above to calculate the results.

Use this cost of equity calculator to estimate the return shareholders require on common equity. Enter a direct required return, or use CAPM inputs: risk-free rate, beta, and equity risk premium or expected market return. The output gives cost of equity for WACC, DCF discount rates, hurdle rates, and valuation sensitivity checks.

Formula

The formula used is CAPM (Capital Asset Pricing Model) formula for the Cost of Equity:

Re = Rf + beta × (Rm − Rf)

Where:

  • Re = Cost of Equity
  • Rf = Risk-Free Rate
  • = Equity Beta (measure of stocks volatility vs market)
  • Rm = Expected Market Return
  • math = Market Risk Premium[/math]

Example

Re = 2.8% + 1 × (8% − 2.8%) = 8%

Related calculators and references

How to Use the Cost of Equity Calculator

Just enter your inputs, choose the method, and get instant results with optional sensitivity analysis. Here is how:

Pick a method

CAPM (Market Return) is default.

Enter inputs

  • CAPM (Market Return): Risk-Free Rate (Rf), Beta (β), Expected Market Return (Rm).
  • CAPM (Risk Premium): Rf, β, Market Risk Premium.
  • DDM: Next dividend (D1), Price (P0), Growth (g).
  • Bond + RP: Bond Yield, Equity Risk Premium.

(Optional) Weighted

turn on if you want the average of multiple methods.

(Optional) Show decimals

Toggle if you need more precision.

Results appear instantly

Read Cost of Equity (Re) at the top of the Results panel.

Use the scenario rows (e.g., “Re if Rf −10%”, “Re if β −10%”) for quick sensitivity checks.

Frequently Asked Questions

These FAQs explain CAPM inputs, beta, equity risk premium, and when to use cost of equity in valuation.

What exactly is the “Cost of Equity” and why would I use this calculator?

The “Cost of Equity” is the return a company must offer to its shareholders to compensate them for the risk of owning equity rather than a “risk-free” asset. You’d use this calculator to estimate that required return (in percentage terms) so you can judge whether an investment, project or company is offering enough return given its risk.

What calculation method does this calculator use and when is it appropriate?

The primary method used here is the Capital Asset Pricing Model (CAPM): Cost of Equity = Rf + β × (Rm – Rf). You should use CAPM when the firm’s equity is publicly traded (or you can find a reliable beta) and you can estimate a market return. Other methods such as the Dividend Growth Model (DGM) apply when the company pays dividends aggressively and growth is fairly steady.

What are common pitfalls or things to watch out for when using the calculator?

Some key pitfalls:

  • Using an outdated or inappropriate risk-free rate (e.g., a short-term yield when a long-term is more relevant).
  • Using an unreliable beta (for private firms or firms with little trading history the beta may not be meaningful).
  • Over- or underestimating the expected market return (Rm), which can skew the equity risk premium significantly.
  • Applying the Dividend Growth method when dividends or growth are unstable—this can lead to misleading cost of equity.
  • Not considering whether the model you use fits the company’s situation (e.g., mature vs growth, dividend payer vs non-payer).
How should I interpret the result and what do I do with the cost of equity once I have it?

Once you calculate the cost of equity (say 8 %), that number is your hurdle rate for equity investors: the company must generate returns at or above that level to satisfy shareholders’ required return. You can use it for:

  • Project or investment evaluation (compare expected return to cost of equity).
  • Incorporating into the Weighted Average Cost of Capital (WACC) if you combine debt and equity in your capital structure.
  • Benchmarking: If your calculated cost of equity is higher than industry peers, it signals higher perceived risk (or less favourable investor expectations).

Sources & Methodology