Definition for : Cost of equity

Cost of Equity is equal to the Risk-free rate plus a Risk premium that reflects the Stock's Systematic risk: ke = rf + Beta x (RM – rf), where ke is the cost of Equity, rf is the Risk-free rate, RM is the expected Market return, and Beta is the Beta of the Share. Cost of Equity is also called Cost of shareholders' equity.

(See Chapters Chapter 19 The required rate of return and Chapter 23 Options of the Vernimmen)

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