How to calculate cost of equity using beta?

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If I can get the beta for a company how can I calculate the cost of equity? What is the formula that I can use to calculate the cost of equity from the beta?

1 Answer

score 0 · Answer 1 · 2012-12-02T18:54:07+00:00

You can calculate the cost of equity using the Capital Asset Pricing model or CAPM.

The formula is:

Cost of equity= Rf+B(Rm-Rf)
where:
Rf= the return of the risk free assets (treasury bills etc)
Rm= is the return of the market (usually a stock market index such as SP500 or FTSE)