Cost of equity calculator
A stock with a beta of 1.2, a 4% riskless rate and a 10% expected market return has a cost of equity of 11.2%, on a 6-point market risk premium. Enter the three CAPM inputs to get the equity hurdle rate for a valuation. Free in your browser.
- Free
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- Your data stays on your device
Run — free
Worked example
- Risk free rate
- 4
- Beta
- 1.2
- Expected market return
- 10
- Market risk premium
- 6
- Cost of equity
- 11.2
The cost of equity is the return common shareholders require for holding a firm's residual claim. Under the capital asset pricing model, that required return equals the risk-free rate plus the stock's beta times the market risk premium, where the premium is the expected market return minus the risk-free rate. Corporate-finance desks use this figure as the equity hurdle inside WACC, as a project screen, and as a check against a quoted earnings yield. This cost of equity calculator accepts those three inputs, applies the CAPM identity, and returns the required equity return as a percentage together with the implied market risk premium.
What the cost of equity means and how CAPM prices it
The cost of equity is the opportunity cost of leaving money in a firm's common stock instead of an equivalently risky traded claim. In the capital asset pricing model that opportunity cost is linear in systematic risk: the required return Re equals the risk-free rate Rf plus beta times the market risk premium, and the premium itself is the expected market return Rm minus Rf. Beta is the sensitivity of the equity's excess return to the market's excess return.
A beta of one moves with the market, so the cost of equity equals the expected market return. A beta above one amplifies market moves and therefore raises the equity hurdle that a project or a division must clear. A beta between zero and one damps those moves and lowers the hurdle toward the risk-free rate.
A negative beta, typical of some hedges and inverse funds, can pull the cost of equity below the risk-free rate because the claim is expected to pay off when the market falls. Algebraically the identity is Re equals Rf plus beta times (Rm minus Rf). A stock with beta 1.2, a four percent risk-free rate, and a ten percent expected market return therefore has a cost of equity of four plus 1.2 times six, or 11.2 percent.
When the market risk premium is zero, the cost of equity equals the risk-free rate regardless of beta. Cost of equity is a required-return identity, not a realized-return tracker: it prices systematic risk only and leaves idiosyncratic volatility uncompensated, which is why two names with the same beta share the same model cost of equity even if one is much noisier day to day.
Where a cost of equity calculator earns its keep
Valuation landing pages that rank for cost of equity calculator need a live form that turns a published equity beta and two annual rates into the single percentage a reader compares across names. Corporate-finance teams take that percentage as the Re they later drop into a WACC model, as the hurdle for an equity-financed project, and as the story they tell a board when a high-beta division cannot clear the same bar as a defensive utility.
Courseware and LMS plugins need a deterministic oracle for problem sets that ask students to compute Re equals Rf plus beta times (Rm minus Rf), including the inverse-asset case where a negative beta pulls the required return below the risk-free rate. Editorial desks contrast the model cost of equity with a trailing earnings yield so a reader can see leftover alpha after CAPM, not a substitute for the model.
Automation authors pin the same percentage in notebooks, workflow tools, and edge workers whenever a spreadsheet changes the Treasury assumption or the consensus market return. Failed validation does not consume balance. The capability never invents a beta from prices or a market premium from an index history; those estimates belong in your data layer, and this calculator only applies the identity once you supply them.
What you can do with it
WACC input and project hurdles
Turn a published equity beta, a Treasury-style risk-free rate, and a market forecast into the CAPM cost of equity that feeds WACC and equity-financed project screens.
High-beta versus defensive required returns
Show why two names that share a risk-free rate still get different costs of equity once their betas scale the same market risk premium.
Classroom cost-of-equity homework keys
Mark problems that ask students to compute Re = Rf + β(Rm − Rf), including negative-beta hedges, with a deterministic percentage oracle.
FAQ
How is the cost of equity calculated under CAPM?
Cost of equity is Re = Rf + β × (Rm − Rf). The market risk premium is the expected market return minus the risk-free rate; multiply that premium by beta and add the risk-free rate. This calculator takes Rf and Rm as percents and returns Re as a percentage.
How is cost of equity different from WACC?
Cost of equity is the required return on common equity alone. WACC blends that equity cost with after-tax debt (and sometimes preferred) using capital-structure weights. Use this calculator for Re; use a cost-of-capital tool when you already have Re and need the blended hurdle.
What does a beta above or below one mean?
A beta of one moves with the market, so the cost of equity equals the expected market return. Above one, the stock amplifies market swings and the hurdle rises; between zero and one, it damps them and the hurdle falls toward the riskless rate.
Can beta be negative?
Yes. Some hedges and inverse funds tend to pay off when the market falls, so their beta is negative. That can pull the cost of equity below the riskless rate, and the calculator accepts it.
Why do two stocks with the same beta get the same cost of equity?
Because CAPM prices only systematic risk, the part tied to the market. A stock that is much noisier day to day but has the same beta earns no extra required return in this model.
Related tools
For developers — API access
Everything on this page is available programmatically. This section is for teams who want to wire it into their own systems; everyone else can just use the tool above.
API endpoint
Prefer to automate it? One authenticated POST creates the task; the result comes back by webhook or a signed link. The same capability also runs here on the web, by email and from Telegram — and soon from our app too.
Call it from your stack
curl -X POST https://api.kit.forhosting.com/fin/cost-of-equity \
-H "Authorization: Bearer $KIT_KEY" \
-H "Content-Type: application/json" \
-d '{"risk_free_rate":4,"beta":1.2,"expected_market_return":10}'const res = await fetch("https://api.kit.forhosting.com/fin/cost-of-equity", {
method: "POST",
headers: {
"Authorization": `Bearer ${process.env.KIT_KEY}`,
"Content-Type": "application/json"
},
body: JSON.stringify({
"risk_free_rate": 4,
"beta": 1.2,
"expected_market_return": 10
})
});
const { task_id } = await res.json();import os, requests
res = requests.post(
"https://api.kit.forhosting.com/fin/cost-of-equity",
headers={"Authorization": f"Bearer {os.environ['KIT_KEY']}"},
json={
"risk_free_rate": 4,
"beta": 1.2,
"expected_market_return": 10
},
)
task_id = res.json()["task_id"]<?php
$res = file_get_contents("https://api.kit.forhosting.com/fin/cost-of-equity", false, stream_context_create([
"http" => [
"method" => "POST",
"header" => "Authorization: Bearer " . getenv("KIT_KEY") . "\r\nContent-Type: application/json",
"content" => '{"risk_free_rate":4,"beta":1.2,"expected_market_return":10}',
],
]));
$task = json_decode($res, true);body := bytes.NewBufferString(`{"risk_free_rate":4,"beta":1.2,"expected_market_return":10}`)
req, _ := http.NewRequest("POST", "https://api.kit.forhosting.com/fin/cost-of-equity", body)
req.Header.Set("Authorization", "Bearer "+os.Getenv("KIT_KEY"))
req.Header.Set("Content-Type", "application/json")
res, _ := http.DefaultClient.Do(req)Example request
{
"risk_free_rate": 4,
"beta": 1.2,
"expected_market_return": 10
}Example response
{
"task_id": "tsk_a1b2c3d4e5f6a1b2c3d4e5f6",
"type": "fin.cost_of_equity",
"status": "queued",
"_links": {
"result": "/tasks/tsk_…/result"
}
}The API is asynchronous: the call returns a task_id immediately and the result arrives by webhook. Polling is capped at 1 req/s per task.
Pricing
Published price — no tokens, no invented credits. A failed task is never charged.
Errors
| HTTP | Code | Meaning |
|---|---|---|
401 | unauthorized | Missing or invalid API key. |
402 | insufficient_balance | Your balance doesn't cover the task price. |
404 | unknown_type | That task type doesn't exist. |
429 | rate_limited | Too many requests. Use the webhook instead of polling. |
Technical notes
A beta that is not a finite number fails with invalid_input instead of inventing a loading.
What the cost of equity means and how CAPM prices it
This endpoint does not fetch live betas, Treasury yields, or index forecasts; it applies the identity you supply so homework keys, landing-page widgets, and valuation automation share one auditable percentage.
Input contract, response shape, and error behaviour
An optional decimals integer from zero through twelve, defaulting to six, controls half-up rounding on the numeric outputs. Rates may be negative when a market quotes a negative nominal risk-free rate or a negative expected market return; the identity remains well-defined in those cases. Example: risk-free rate four, beta one point two, expected market return ten yields a six-point market risk premium and a cost of equity of eleven point two percent. POST a JSON body with three required finite numbers. risk_free_rate is an annual percent such as four for four percent, with aliases rf, risk_free, and r_f. beta is the equity's systematic-risk loading; it must be a finite number and may be negative for inverse or hedging claims, with aliases beta_i and equity_beta. expected_market_return is an annual percent for the expected market-portfolio return, with aliases market_return, rm, and r_m. The distinctive failure is a non-finite beta: a missing, empty, NaN, or infinite beta fails with invalid_input naming the field, and the call is not billed. Missing or non-finite risk_free_rate or expected_market_return fail the same way, so a client never receives a silently invented hurdle. On success the body echoes the three inputs and adds market_risk_premium, which is expected_market_return minus risk_free_rate in percent, cost_of_equity as a percentage in the same units as the input rates, and a formula string restating the identity. Pair the response with your own beta estimate and market forecast; this endpoint measures the identity only and does not annualize, currency-convert, or adjust for tax or flotation costs. Keep the three required fields as JSON numbers or numeric strings, never as booleans, so the solver can reject a non-finite beta without guessing a loading of zero or one.
Technical questions
What happens if beta is not a finite number?
The task fails with invalid_input. A missing, empty, NaN, or infinite beta is not a well-posed loading, so no cost of equity is invented and the call is not billed.
Are the rates entered as percents or decimals?
risk_free_rate and expected_market_return are annual percents (4 means 4%, 10 means 10%). The response returns cost_of_equity in the same percent units, not as a decimal ratio.
What does the cost of equity calculator cost?
The browser tool is free. API requests use prepaid KIT balance at $0.002 per successful call; invalid input is not billed.