Money Tools

Cost of Equity Calculator

Estimate cost of equity with a practical CAPM-style approach.

Updated April 18, 2026
Free online tool
Planning and research use

Why this page exists

Required return assumptions get easier to compare when risk-free rate, beta, and market risk premium are combined into one cost-of-equity estimate instead of being reviewed as separate inputs. This calculator helps visitors estimate cost of equity using a practical CAPM-style formula that is easy to reuse in valuation and hurdle-rate planning.

Interactive tool

Run the estimate

Enter your numbers and read the result first, then use the sections below to understand what affects the outcome.

Calculator

Cost of equity calculator

Estimate cost of equity with a simplified CAPM-style approach using risk-free rate, beta, and market risk premium.

Result

10.52%

Estimated cost of equity from risk-free rate plus beta multiplied by the market risk premium entered.

Estimated cost of equity10.52%

Risk-free rate used4.20%

Beta used1.15

Market risk premium used5.50%

4.20% plus beta 1.15 times a 5.50% market risk premium points to an estimated cost of equity near 10.52%.
This CAPM-style estimate is useful as a practical hurdle-rate input, but it remains sensitive to the assumptions chosen for beta and market premium.
Use the result with WACC, DCF, and return-on-equity tools if you want to connect the estimate to valuation and capital-return work.

This is a simplified estimate only. Small changes in the assumptions can move the result materially, and it should not be treated as investment advice.

Planning note

Last updated April 18, 2026. Use this tool to compare scenarios and plan ahead, then confirm important details with the lender, employer, insurer, contractor, or other qualified provider involved in the final decision.

How it works

What the calculator is doing

Enter the risk-free rate, beta, and market risk premium.

The calculator adds the risk-free rate to beta multiplied by the market risk premium.

It shows the resulting estimated cost of equity together with the assumptions used.

Understanding your result

This is a simplified estimate only. It can be useful for discounted-cash-flow work or hurdle-rate planning, but the result remains highly sensitive to the beta and market-premium assumptions chosen.

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Examples

Ways people use this tool

Example scenarios help turn a quick estimate into a more useful comparison or planning step.

Build a quick required-return assumption for valuation work

A CAPM-style output can provide a practical starting point before moving into DCF or WACC comparisons.

Test how beta changes the required return

Changing beta can show how quickly a more or less volatile equity profile shifts the estimated cost of equity.

When to use it

Good times to run this calculator

Use this when you want a practical cost-of-equity estimate for valuation, discount-rate, or hurdle-rate work.

It is especially useful when you want to compare how different beta or market-premium assumptions change the expected return requirement.

Assumptions and limitations

The estimate assumes a CAPM-style framework is appropriate for the question you are asking.

It does not resolve which risk-free rate, beta period, or market premium estimate is most appropriate, and those choices can change the result materially.

Common mistakes

Avoid the usual input mistakes

Treating a single cost-of-equity output like a fixed truth can be misleading because the estimate is highly assumption-sensitive.

Mixing a beta estimate from one market context with a market premium from another can weaken the result quickly.

Practical tips

Run a conservative and an aggressive scenario if you want to see how sensitive the estimate is before using it in a valuation model.

Review the result with WACC and DCF tools so the required-return estimate stays connected to the rest of the valuation workflow.

Worked example

Walk through a realistic scenario

A worked example shows how the estimate behaves when the inputs resemble a real planning decision.

Estimate a CAPM-style cost of equity

An analyst wants a quick required-return estimate before testing a valuation model with several discount-rate scenarios.

1. Enter the risk-free rate, beta, and market risk premium.

2. Multiply beta by the market risk premium.

3. Add the result to the risk-free rate to estimate cost of equity.

Takeaway: The result creates a practical first-pass return assumption that can be reused in follow-up valuation work.

FAQ

Common questions

How is cost of equity calculated here?

The calculator uses a CAPM-style formula: risk-free rate plus beta multiplied by market risk premium.

Why does beta matter so much?

Because beta scales how much market risk premium is added to the risk-free rate, so higher beta usually means a higher estimated cost of equity.

Is this the one true required return?

No. It is only a practical estimate, and the output can vary meaningfully depending on the assumptions chosen.

Related tools

Keep comparing

WACC, DCF, ROE, and present-value tools help place the cost-of-equity estimate inside a broader capital-cost and valuation workflow.

Enterprise-value and earnings-multiple tools add context when the next step is to compare a required-return estimate with market valuation signals.

Money ToolsUpdated April 16, 2026