Investor Glossary-cost of equityInvestor Glossary-cost of equityInvestor Glossary-cost of equityInvestor Glossary-cost of equityInsightful stock market charts - Click here
investor
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Cost Of Equity

The HTML to link to this page
 

The cost of equity is the minimum rate of return that a business or organization must offer investors or owners to offset their wait for a return on investment and for assuming some level of risk. There are conflicting approaches on estimating the cost of equity and cost of equity percentages. The traditional formula for calculating the cost of equity is the dividend capitalization model (dividend per share/price per share + growth rate of dividends). With the dividend capitalization model, the cost of equity can be calculated for a given industry based on the current rate of return. A higher cost of equity usually signifies a higher risk industry that commands a higher return for the increased risk. Cost of equity can also be determined by the capital asset pricing model (CAPM). Calculating the cost of equity using CAPM is often more difficult then using the dividend capitalization model for determining the cost of equity. The cost of equity does not show up on a company's income statement, however, the cost of equity is never free.



Rate this cost of equity definition...

Learn about investing with the Investor Glossary Term of the Day


Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.


Popular Terms: inflation, EBITDA, average price per share, current ratio, FTSE, 1035 exchange, LIBOR, annual return, deferred revenue, option premium, 401a, command economy, open position, real GDP, implied volatility, in escrow, quality assurance, cancelled check, dividends payable, covered put, stock split, 1031 exchange, class C shares, required rate of return, ex-dividend, limit order, risk management, Zero Cost Collar, reverse mortgage, minority interest, VIX, deferred tax, Key Rate Duration, margin rate, wholly-owned subsidiary, APR, 144a, diluted share, stock market close, FICO score, ex-dividend date, phantom income, per diem, debt service coverage, balance sheet, retained earnings, irrevocable trust, labor relations, liquidity ratio


Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2016 Investor Glossary - All rights reserved - Terms of Use