CAPM Calculator — Cost of Equity (Ke)
CAPM (Capital Asset Pricing Model) estimates the return equity investors require: Cost of Equity Ke = Risk-free Rate + Beta × Equity Risk Premium. With a 4.5% risk-free rate, beta of 1.2 and a 5.5% premium, Ke = 11.1%. Enter your inputs below to compute yours.
Ke = Rf + β × ERP
Worked example (default inputs)
| Risk-free rate Rf (%) | 4.5 |
| Beta (β) | 1.2 |
| Equity risk premium ERP (%) | 5.5 |
| Cost of equity (Ke) | 11.10% |
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Frequently asked questions
What beta should I use?
Use the average beta of listed companies in your sector, releveraged for your capital structure. Stable utilities run ~0.5–0.8; typical operating businesses ~1.0–1.3; early-stage or cyclical businesses 1.5+.
What is the equity risk premium?
The extra return investors demand for holding equities over government bonds — commonly estimated at 4.5–6% for developed markets, higher for emerging markets.
How does CAPM feed into WACC?
CAPM produces the cost of equity, which is blended with the after-tax cost of debt by capital-structure weights to give WACC — the discount rate used in DCF.
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