How to Calculate Cost of Equity using CAPM
This video shows how to calculate a company's cost of equity by using the Capital Asset Pricing Model (CAPM). You can calculate the cost of equity for a company by using the following formula: Cost of Equity = Risk-free Rate + Beta * (Expected Market Return - Risk-free Rate) For example, let's say the risk-free rate is 2% and the expected market return is 10%. If a company's beta is 2.5, its cost of equity would be 22%. This cost of equity is the required rate of return that investors would expect to receive based on the company's systematic risk. If the systematic risk were higher (for example, a company with a beta of 3.0), then the cost of equity would be higher (26%) because investors would expect a higher return to compensate for bearing a higher level of systematic risk.— Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. — SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • A 44-PAGE GUIDE TO U.S. TAXATION • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • MANY MORE FREE PDF GUIDES AND SPREADSHEETS http://eepurl.com/dIaa5z — SUPPORT EDSPIRA ON PATREON * / prof_mclaughlin — GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT https://edspira.thinkific.com — LISTEN TO THE SCHEME PODCAST Apple Podcasts: https://podcasts.apple.com/us/podcast... Spotify: https://open.spotify.com/show/4WaNTqV... Website: https://www.edspira.com/podcast-2/ — GET TAX TIPS ON TIKTOK / prof_mclaughlin — ACCESS INDEX OF VIDEOS https://www.edspira.com/index — CONNECT WITH EDSPIRA Facebook: / edspira Instagram: / edspiradotcom LinkedIn: / edspira — CONNECT WITH MICHAEL Twitter: / prof_mclaughlin LinkedIn: / prof-michael-mclaughlin — ABOUT EDSPIRA AND ITS CREATOR https://www.edspira.com/about/ https://michaelmclaughlin.com
