CAPM cost of equity
Estimate a stock’s cost of equity — the discount rate a valuation needs — by turning its risk into a required return via the Capital Asset Pricing Model.
Runs entirely in your browserRuns entirely on your device — nothing you type is sent anywhere. Educational only, and not investment advice.
How to use this calculator
Each step names a control you will find on screen above.
- Risk-free rate
What a near-zero-risk asset pays — use a current 10-year government bond (G-sec) yield, not a US rate.
- Beta
How much the stock amplifies the market’s moves. A beta of 1 moves with the market; above 1 swings harder and demands more return.
- Equity risk premium
The extra return equities pay over the risk-free asset. It is an estimate, so use an India-specific figure and test a range.
Worked example: A beta-1.2 stock
Risk-free rate 6%, beta 1.2, equity risk premium 7%.
What to enter
- Risk-free rate
- 6%
- Beta
- 1.2
- Equity risk premium
- 7%
What it shows you
- Risk premium earned
- 8.4%
- Cost of equity
- 14.4%
- If beta were 1.6
- 17.2%
- Use as
- DCF / DDM discount rate
Where this is taught
A calculator gives you a number. These explain what the number means and when it misleads you.
- Fundamental Analysis11 minCAPM: the price of risk, and your cost of equityEvery valuation needs a discount rate, and the cost of equity is where it starts. How the Capital Asset Pricing Model turns a stock’s risk into a required return, and how to use — and distrust — the answer.
- Technical Analysis9 minJensen’s alpha: return the market did not owe youAlpha is the return a portfolio earned above what its risk — its beta — entitled it to. How CAPM defines it, why positive alpha is the holy grail, and why so little of it is real.
- Technical Analysis13 minHedging a portfolio with derivativesDerivatives were built to reduce risk, not to chase it. Using index futures and options to protect a portfolio through a risky patch is their oldest and most defensible use — and it has a cost you should price before you decide it is worth paying.
- Technical Analysis11 minHow much of that move was just the indexYour stock rose 4%. If the index rose 3% and the stock has a beta of 1.3, it did nothing at all — and separating the two changes what you conclude.
- Technical Analysis10 minIndices behave differently from stocksAn index is a weighted average of many things, and that changes almost everything — volatility, mean reversion, gaps and the risks you carry.