What Is the Cost of Equity Capital?

The cost of equity is a financial term, also known as the lowest annual rate of return. It is used to indicate the compensation given by a company to the equity and investment risk of ordinary shareholders, that is, the minimum annual rate of return required by the company's equity parties.

Cost of equity

Cost of equity is a financial term, also known as the minimum year

Required by the company's stakeholders

Cost of equity traditionally used

Assume that according to the risk characteristics of ABC Bank, an investor has proposed a 9% return on investment for it. Its current market value is 100 and its expected dividend per share is 3. Therefore, the investor's total return is 9, which is a dividend of 3 plus a stock price appreciation of 6. For ABC Bank, its cost of equity is 9%.