What is 'Cost Of Equity'
In financial theory, the return that stockholders require for a company. The traditional formula for cost of equity (COE) is the dividend capitalization model:
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A firm's cost of equity represents the compensation that the market demands in exchange for owning the asset and bearing the risk of ownership.
BREAKING DOWN 'Cost Of Equity'
Let's look at a very simple example: let's say you require a rate of return of 10% on an investment in TSJ Sports. The stock is currently trading at $10 and will pay a dividend of $0.30. Through a combination of dividends and share appreciation you require a $1.00 return on your $10.00 investment. Therefore the stock will have to appreciate by $0.70, which, combined with the $0.30 from dividends, gives you your 10% cost of equity.
The capital asset pricing model (CAPM) is another method used to determine cost of equity.

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What is the difference between cost of equity and cost of capital?
Read about some of the differences between a company's cost of equity and its cost of capital, two measures of its required ... Read Answer >> 
How does market risk affect the cost of capital?
Find out how market risk directly affects the total cost of capital, including how to use the capital asset pricing model ... Read Answer >> 
What is the difference between the cost of capital and required return?
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Do stock splits and stock dividends affect stockholder equity?
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How do you calculate the ratio between debt and equity in the cost of capital
Discover how to calculate the ratio between debt and equity when making cost of capital estimations using the weighted average ... Read Answer >> 
Does stockholders equity accurately reflect a company's worth?
Learn whether stockholders' equity accurately reflects a company's worth. Stockholders' equity is found by taking the difference ... Read Answer >>