Calculate the Cost of Equity
The most common approach to estimate the cost of equity is to use the Capital Asset Pricing Model (CAPM). The CAPM requires as inputs the subject firm's beta, risk-free rate, and equity risk premium. From the prior exercises, you calculated the subject firm's beta (relevered_beta
), risk-free rate from FRED (rf
), and equity risk premium (erp
). Now, combine all these inputs to calculate the CAPM Cost of Equity.
This exercise is part of the course
Equity Valuation in R
Exercise instructions
- Calculate the CAPM Cost of Equity.
Hands-on interactive exercise
Have a go at this exercise by completing this sample code.
capm_coe <- ___
capm_coe