Cost of equity

Description

The cost of capital is a term used in the field of financial investment to refer to the cost of a company’s funds (both debt and equity). Equity is the residual value or interest of the most junior class of investors in assets, after all liabilities are paid. The cost of capital is the rate of return that capital could be expected to earn in an alternative investment of equivalent risk.

Related formulas

Variables

EsCost of equity (The expected return for a security) (dimensionless)
RfRisk free rate of return (dimensionless)
βsThe sensitivity to market risk for the security (dimensionless)
RmThe expected market rate of return (dimensionless)