Quickly determine the Cost of Equity using the Capital Asset Pricing Model (CAPM). Our free online calculator helps financial professionals and investors estimate the required rate of return for equity investments, aiding in crucial financial analysis and investment decisions. Understand the risk-return trade-off easily.
Formula:
The Capital Asset Pricing Model (CAPM) formula is used to calculate the expected return on an investment, considering its sensitivity to systematic risk (beta) and the expected market return, above the risk-free rate.
Formula:
Re = Rf + β * (Rm - Rf)
Where:
Re= Cost of Equity (Required Rate of Return)Rf= Risk-Free Rate of Return (e.g., yield on government bonds)β= Beta (a measure of the stock's volatility in relation to the overall market)Rm= Expected Market Rate of Return (e.g., average market return)(Rm - Rf)= Market Risk Premium