CAPM Cost of Equity Calculator (Beta and Risk Premium)
Calculates the cost of equity (expected return) with the Capital Asset Pricing Model (CAPM) from the risk-free rate, beta and market risk premium; a country risk premium can be added.
Things to keep in mind:
- CAPM is a model; beta is estimated from past data and may not reflect the future.
- The risk-free rate, market return and cash flows must use the same currency and inflation assumption.
- Small and private companies may need an extra size or liquidity premium; the tool does not add one automatically.
- The result is not investment advice.
Calculator
Result
Enter the values and press Calculate to see the result here.
About this tool
The Capital Asset Pricing Model (CAPM) links the return investors require from a share or a company — its cost of equity — to systematic risk (beta). The result is used as the discount rate in WACC, DCF valuation and the dividend discount model.
Formula
- Market risk premium = Expected market return − Risk-free rate
- Cost of equity = Risk-free rate + Beta × Market risk premium (+ Country risk premium)
Example: with a TRY risk-free rate of 30%, an expected BIST return of 40% and a beta of 1.2, the market risk premium is 10%, the share's risk premium 1.2 × 10% = 12% and the cost of equity 42%.
Choosing inputs: the risk-free rate and market return must be in the same currency. In TRY a long-term government bond yield is usually used. If the calculation uses a US Treasury yield and a mature-market risk premium in USD, a country risk premium (derived e.g. from CDS or bond spreads) is added for Turkey-specific risk; the TRY risk-free rate already contains country risk, so it is not added again in a TRY calculation. Beta measures the share's sensitivity to the market index: above 1 means more volatile than the market, below 1 less volatile.
How to use
- Enter the risk-free rate (a long-term government bond yield for TRY).
- Enter the beta of the share or comparable companies.
- Choose and enter either the expected market return or the market risk premium directly.
- For a USD/EUR calculation add a country risk premium if needed, then press Calculate.
Notes
Rates are entered as percentages; results are rounded to 2 decimals (HALF_UP). The calculation is annual and nominal; use the Fisher Real Return tool to convert to a real rate. A market return below the risk-free rate gives a negative premium, which may indicate inconsistent inputs.
Sources
Frequently asked questions
With CAPM: Risk-free rate + Beta × (Market return − Risk-free rate). For example a 30% risk-free rate, a beta of 1.2 and a 10% market risk premium give a cost of equity of 42%.
Beta is the sensitivity of a share's returns to the market index, estimated by regressing past returns. For listed companies financial data providers publish it; for private companies the beta of comparable companies is used.
When the calculation uses a mature-market currency such as USD or EUR and its risk-free rate, to reflect Turkey risk. With a TRY bond yield, country risk is already in the rate and is usually not added.
Enter the cost of equity in the WACC tool; weighted with the after-tax cost of debt it gives the company's cost of capital.
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