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CAPM – Cost of Equity

Quick answer

CAPM: Re = Rf + β(Rm−Rf): with a 3% risk-free rate, beta 1.4 and 5% market premium, equity costs 10%.

  • Built for quick, repeated daily use.

Figures are estimates from this calculator’s standard formula — adjust the inputs in the tool below for your exact number.

How the CAPM Calculator Calculates Results

Re = Rf + β × (Rm − Rf)

The Capital Asset Pricing Model prices the return equity investors demand: the risk-free rate plus beta times the market risk premium. Mathematically, the engine applies Re = Rf + β × (Rm − Rf). With a 3% risk-free rate, a beta of 1.4 and a 5% equity premium: Re = 3% + 1.4 × 5% = 10% — the discount rate for this company's dividends and cash flows. Everything you enter stays in your browser, and the answer appears in the same units as your inputs the moment the figures are complete.

  1. 1

    Step 1

    Fill in each input field with your own data.

  2. 2

    Step 2

    The tool runs the formula Re = Rf + β × (Rm − Rf) on your figures.

  3. 3

    Step 3

    Review the result displayed on screen.

  4. 4

    Step 4

    Refine the inputs until the numbers fit your case.

Use Cases

DCF discounting

Setting the cost of equity input

Stock screening

Comparing required returns across betas

WACC building

Pairing Re with after-tax debt cost

Portfolio analysis

Sizing systematic risk exposures

Common Mistakes

  • Using stale betas

  • Double-counting country risk

  • Negative-beta confusion

FAQs

What beta should I use?

Regression betas are noisy; use 3–5 years weekly data or industry averages — a utility sits near 0.5, tech near 1.3.

What is the equity risk premium?

The extra return stocks deliver over bonds: historically ≈4.5–5.5% — surveys and implied premia converge near 5%.

What is the math behind the CAPM Calculator?

The CAPM Calculator applies Re = Rf + β × (Rm − Rf), where β measures the asset's sensitivity to market moves.

Can I use it on my phone?

The CAPM Calculator works on phones, tablets and desktop screens alike, with the same instant results everywhere.

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