Cost of equity (Ke): CAPM - part 2
Taught by Ben Wilson · AI tutor support included
You'll learn how to apply the Capital Asset Pricing Model (CAPM) formula to calculate a company's cost of equity, a key valuation metric in FM and AFM.
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In this lesson
- 0:00 Understanding the CAPM formula components
- 0:15 Risk-free rate and systematic risk explained
- 1:00 Market return and the risk premium
- 1:32 Beta: tailoring risk to your company
- 2:09 Worked example: Little Dave calculation
- 4:50 Summary and exam preparation tips
About this lesson
This video walks you through each component of the formula—the risk-free rate, market return, and beta—then works through a complete worked example so you can see how the pieces fit together. By the end, you'll be confident using CAPM to determine the return investors require, and you'll understand why beta is crucial for making the calculation company-specific. This is essential exam technique for financial management papers, where you'll need both accurate calculations and the ability to explain the reasoning behind your approach.
Duration: 6m
Transcript
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