CAPM Cost of Equity Calculator
Required return on equity from the risk-free rate, beta and the market return.
Results
What this tool does
The model says an investor should be paid the risk-free rate plus a premium proportional to how much the asset amplifies market movements. Every input is contested in practice: which government bond counts as risk-free, over what period to measure beta, and what the market premium even is — estimates range from four to seven percent. Treat the output as a range, not a number.
Formula
Re = Rf + β (Rm − Rf)
Variables
| Symbol | Meaning | Unit |
|---|---|---|
rf | Risk-free rate | % |
be | Beta | — |
rm | Expected market return | % |
RE | Cost of equity | % |
MP | Risk premium | % |
SP | Risk premium | % |
D1 | Percentage | % |
Worked example
- Risk-free rate3 %
- Beta1.2
- Expected market return8 %
- Cost of equity9.0000 %
- Risk premium5.0000 %
- Risk premium6.0000 %
- Percentage136.74 %
Limitations
- This is an informational calculator, not personalised financial advice. Rates, fees, taxes and contract conditions vary between institutions and countries.
- The result is an estimate based only on the values you type. Real situations often include factors this calculator does not know about.
- The formula assumes ideal conditions: no friction losses, no air resistance and no efficiency losses unless you enter them.
Frequently asked questions
What does beta actually measure?
How much an asset has historically moved when the whole market moved — a beta of 1.2 means it swung twenty percent more than the index, up and down alike. It captures only the risk that cannot be diversified away, which is the model's central claim: the market pays you for undiversifiable risk and nothing for the rest. Beta is measured from past returns, so it tells you what a share used to do, not what it will do.