# Cost of equity

How would you determine the cost of equity. There is know interest rate like you have with a bond, so how do you know what rate to use?

150 words

© BrainMass Inc. brainmass.com October 9, 2019, 10:58 pm ad1c9bdddfhttps://brainmass.com/business/discounted-cash-flows-model/cost-equity-239780

#### Solution Preview

How would you determine the cost of equity? There is know interest rate like you have with a bond, so how do you know what rate to use?

As per the cbdd, The cost of equity capital is equal to the required rate of return on equity-supplied capital. Hence cost of equity represents the opportunity cost of the shareholders. We will find the rate for cost of equity by using various models. These are described below:

Cost of equity using dividend growth model

AS per Investopedia "DDM demonstrates the underlying principle that a company is worth the sum of ...

#### Solution Summary

The response provides the guidelines to determine the cost of equity.