How do you calculate the cost of equity?
The cost of equity is calculated by CAPM. CAPM stands for Capital Asset Pricing Model. Below is the formula used to calculate the cost of equity.
E(Ri) = R(f) + β[E(m) - R(f)]
β = Beta of the stock.
E(m) = Market Rate of Return
[E(m)-R(f)] = equity risk premium.
R(f) = Risk -free Rate of Return.
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