Cost of Equity Calculator
Owners need about 10.13% a year to accept this risk. Use it as the cost of equity in the WACC calculator.
How the cost of equity calculation works
The yearly return owners expect for the risk they take, by CAPM or the dividend growth model.
CAPM: cost of equity = risk-free rate + beta × equity risk premium
The risk-free rate is usually the 10-year Treasury yield. Beta measures how much the stock moves with the market.
Multiply beta by the equity risk premium
A beta of 1.2 and a premium of 4.20% give 1.2 × 4.20% = 5.04% of extra return for risk.
Add the risk-free rate
5.09% + 5.04% = 10.13%. Add a size or company premium if you use one.
Or use the dividend growth model
Cost of equity = next year's dividend ÷ share price + growth. $2.10 ÷ $50 + 5% = 9.20%.
Worked example. With a 5.09% risk-free rate, a beta of 1.2 and a 4.20% equity risk premium, CAPM gives 5.09% + 1.2 × 4.20% = 10.13%. With the dividend growth model, a $50 share that paid $2.00 last year with 5% growth pays $2.10 next year, so the cost of equity is $2.10 ÷ $50 + 5% = 4.20% + 5% = 9.20%.
Cost of Equity FAQ
What is the cost of equity formula?
With CAPM: cost of equity = risk-free rate + beta × (expected market return − risk-free rate). The bracket is the equity risk premium. With the dividend growth model: cost of equity = D1 ÷ P + g, where D1 is next year's dividend, P the share price and g the dividend growth rate.
How do you calculate cost of equity with CAPM?
Take the 10-year Treasury yield as the risk-free rate, multiply beta by the equity risk premium and add the two. 5.09% + 1.2 × 4.20% = 10.13%.
What risk-free rate and equity risk premium should I use?
Most analysts use the 10-year Treasury yield, which was 5.09% on 16 Oct 2026 (Federal Reserve H.15). For the premium, NYU Stern's Aswath Damodaran estimated a US implied premium of 4.20% on 1 Oct 2026, using a 5.29% Treasury rate. Both change every day or month, so check the latest figures.
What beta should a small or private business use?
A private company has no share price, so it has no beta of its own. Use the average beta of listed companies in your industry. In NYU Stern's January 2026 US data, the total market averaged 0.91, general utilities 0.24 and software 1.28. Many valuers then add a size or company-specific premium.
What is a typical cost of equity?
NYU Stern's January 2026 data puts the average cost of equity for US listed companies at 8.02%, for example 5.02% for general utilities and 9.64% for software. Small private businesses are riskier, so their owners usually expect more.
What is the difference between cost of equity and cost of capital?
Cost of equity is what owners expect. Cost of capital (WACC) blends it with the after-tax cost of debt, weighted by how much of each the business uses.
When does the dividend growth model not work?
It needs a company that pays a steady dividend, and growth must be lower than the cost of equity. For a business that pays no dividends, use CAPM.
Sources: Federal Reserve H.15 Selected Interest Rates (released 19 Oct 2026): 10-year Treasury 5.09% on 16 Oct 2026 · NYU Stern (Damodaran) home page: implied ERP on 1 Oct 2026 = 4.20% · NYU Stern (Damodaran): Cost of capital by sector (US), January 2026 · NYU Stern (Damodaran): Betas by sector (US), January 2026