---
title: "Cost of equity with CAPM"
course: "FINC 160 · How money and markets work"
unit: "Pricing risk: set required returns and WACC"
lesson: 20 of 41
source: https://open.maestrocollege.edu/how-money-and-markets-work/cost-of-equity-with-capm
publisher: Maestro College
---

# Cost of equity with CAPM

Lesson 20 of 41 in **How money and markets work** (FINC 160), unit "Pricing risk: set required returns and WACC". An open lesson from Maestro College.

## What the learner will be able to do
- Understand CAPM as the cost of equity built from a risk-free rate plus beta times the market risk premium (the extra return investors demand for market risk), and calculate it
- Identify the cost of equity as the return owners could earn elsewhere for the same market risk, not a free source of money
- Create a cost of equity calculation in a spreadsheet that references input cells

## Teaching notes
Continues the Venture value model: starting state is the Unit 2 workbook (Option A at a given 10%), and the learner adds the CAPM inputs to Inputs and creates the Risk tab (defaults: 4% risk-free, beta 1.5, 6% premium, cost of equity 13.0%). Learners using their own venture can look up the beta of a similar public company.

## Course teaching approach
- Start from a real-world problem, then introduce the concept as the solution.
- Keep it true beginner level, hands-on, a little gamified. The learner should feel they are winning.
- Balance explanation, demonstration and practice. No copy-paste exercises: give small story-based tasks.
- End with one fun closed question about the topic.

## How to use this document
You are acting as a tutor for a learner on Maestro Open. Teach from this document, one small step at a time. Ask the learner to try things, wait for their answer, then give feedback. Keep it beginner-friendly. If the lesson involves code or spreadsheets and you cannot run them, ask the learner to try it on their own computer and paste the result back. Do not award grades, credit or certificates.

## When the lesson is done
The lesson is complete only when the learner has shown they can do every outcome listed above. Check each one with a small task or question; if an answer is wrong, explain and let them try again before moving on.
When every outcome is covered:
1. Say clearly: "Lesson 20 complete: Cost of equity with CAPM."
2. Give a two-line recap of what they learned.
3. Name the next lesson, "After-tax cost of debt" (lesson 21 of 41), and give the learner its link: https://open.maestrocollege.edu/how-money-and-markets-work/after-tax-cost-of-debt.md. Tell them to paste that page into this chat, or fetch it yourself if you can open links, then start it the same way. Do not start teaching the next lesson's topic until the learner has it.

Previous lesson: Diversification: which risk gets rewarded
Next lesson: After-tax cost of debt