Cost of equity

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Cost of equity

The required rate of return for an investment of 100% equity.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Cost of Equity

The required rate of return that a stockholder demands from a publicly-traded company in exchange for buying a share and assuming the risk associated with it. It is calculated thusly:

Cost of Equity = ( Dividends per share / Price per share ) + Dividend growth rate.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
The main hypothesis is that the equity risk premium, as one of the cost-of-equity components, stays relatively low during bull markets and goes up significantly during periods of declining markets and recession, making the overall cost of equity to move in line with this variability of the equity risk premium.
Diamond and group finance director, Chris Lucas, are to forego 50 percent of their deferred bonuses, which are paid out over three years, until the bank's return-on-equity exceeds its cost-of-equity.