What is a typical cost of equity?

With a risk-free rate near 4% and an equity risk premium near 4.5%, a stock with a beta of 1 has a cost of equity of about 8.5%. A defensive stock (beta near 0.7) is closer to 7%. A volatile stock (beta near 1.5) is above 10.5%.

What is the difference between the cost of equity and WACC?

The cost of equity is what shareholders alone expect. WACC mixes it with the after-tax cost of debt, weighted by how much of each the company uses. Debt is usually cheaper and its interest reduces tax, so WACC is usually lower than the cost of equity for a company with debt.

Is a high cost of equity good?

Not for the company. It means shareholders see more risk and want more return, so a DCF values the business lower today. For an investor, a stock priced to return more than its cost of equity is what you look for.

What is an example of the cost of equity?

Take a risk-free rate of 4.5%, a beta of 1.2 and an expected market return of 9%. The cost of equity is 4.5% + 1.2 × (9% − 4.5%) = 9.9%. Do not confuse it with return on equity (ROE): ROE is the profit the company made, and the cost of equity is the return investors expect.

Free tool

Cost of Equity Calculator (CAPM)

The return a stock must earn, from CAPM, with today's 10-year Treasury yield filled in.

Risk-free rate (Rf)US Treasury 10Y, 2026-10-23

Beta (β)

From any quote page; 1.0 = market average

Equity risk premium (ERP)

Commonly estimated at 4–5.5% for US equities

Cost of equity (CAPM)

9.50%

That's the typical range for a market-average stock at today's rates, and a sensible hurdle for equity cash flows.

Formula: Re = Rf + β × ERP
Reading: 5.00% + 1.00 × 4.50%

How to estimate a stock's cost of equity

The current 10-year Treasury yield is already filled in as the risk-free rate.
Set beta. 1.0 is the market average. Defensive stocks are below 1 and cyclical stocks above.
Keep the equity risk premium at 4–5.5% unless you have a strong reason to change it.
Read the result as a hurdle: the return the stock must offer to be worth holding.
Use it as the discount rate for equity cash flows, or as the cost of equity in the WACC calculator.

The Treasury yield updates daily from the US Treasury's published curve.

How this was calculated

Re = Rf + β × ERP

Rf is the risk-free rate, the 10-year US Treasury yield, updated daily. β (beta) shows how much the stock moves with the market. Data providers usually measure it over five years of monthly returns against the S&P 500. ERP is the equity risk premium, the extra return investors want for owning stocks instead of government bonds, often 4–5.5% for US stocks.

These are estimates for learning, not investment advice.

CAPM and the other way to check it

CAPM works for any stock, so most valuations use it. For a company with a steady, growing dividend, you can check it with the dividend model: cost of equity = next year's dividend ÷ share price + dividend growth rate.

Equity costs more than debt, because shareholders take more risk than lenders. Both feed the weighted average cost of capital (WACC), the discount rate in a DCF. A change in either one changes what the business is worth on paper.

Cost of capital for real companies

The WACC calculator adds each company's own debt and tax rate to this cost of equity.

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Questions

Most analysts use CAPM: Re = Rf + β × ERP. Rf is the risk-free rate (the 10-year Treasury yield), β is how much the stock moves with the market, and ERP is the equity risk premium, the extra return investors want for owning stocks instead of government bonds. This calculator fills in today's Treasury yield. You set beta and the premium.
With a risk-free rate near 4% and an equity risk premium near 4.5%, a stock with a beta of 1 has a cost of equity of about 8.5%. A defensive stock (beta near 0.7) is closer to 7%. A volatile stock (beta near 1.5) is above 10.5%.
The cost of equity is what shareholders alone expect. WACC mixes it with the after-tax cost of debt, weighted by how much of each the company uses. Debt is usually cheaper and its interest reduces tax, so WACC is usually lower than the cost of equity for a company with debt.
Not for the company. It means shareholders see more risk and want more return, so a DCF values the business lower today. For an investor, a stock priced to return more than its cost of equity is what you look for.
Take a risk-free rate of 4.5%, a beta of 1.2 and an expected market return of 9%. The cost of equity is 4.5% + 1.2 × (9% − 4.5%) = 9.9%. Do not confuse it with return on equity (ROE): ROE is the profit the company made, and the cost of equity is the return investors expect.