Cost of equity = risk-free rate + beta × market risk premium; in emerging markets additional premiums such as country risk and size premiums may be added. The result is a component of the weighted average cost of capital.
Related terms
BetaA coefficient measuring the sensitivity of a share's return to changes in the market return, that is, its systematic risk.Risk-free rate and market risk premiumThe risk-free rate is the return on an investment considered free of default risk; the market risk premium is the additional return investors expect for equity market risk.Cost of capitalThe minimum rate of return investors expect from an investment in return for the risk they take.Break-even pointThe sales volume or amount at which total revenue equals total cost and the business makes neither profit nor loss.Completion accountsFinancial statements prepared as at the closing date of an acquisition, through which the final price is set by net debt and working capital adjustments.Control premium and discount for lack of marketabilityA control premium is the extra amount paid for a stake that gives control of a company; a discount for lack of marketability is a reduction in value for shares that cannot easily be sold.
Last updated: October 31, 2026 · This definition is for general information only.