calculate_capm_cost_of_equity
Declared read-onlyShow server-provided details
Server description (copied; language not verified)
Calculate the cost of equity using the Capital Asset Pricing Model (CAPM): the risk-free rate plus beta times the market risk premium. Formula: Re = Rf + beta x (Rm - Rf). WHEN TO USE: Use to estimate the required return on equity — an input to WACC (calculate_wacc) and DCF discount rates, or as a standalone return hurdle. WHEN NOT TO USE: Do NOT use for companies where beta is a poor risk measure (private companies without a traded beta — consider building up from comparable betas via calculate_unlever_beta / calculate_relever_beta first). BEHAVIOUR: pure deterministic calculation — no side effects, no network or storage access; idempotent and non-destructive; identical inputs always produce identical outputs. Division by zero, non-finite inputs, or mathematically undefined combinations return an explicit error instead of a number. RETURNS: JSON object { cost_of_equity: decimal (e.g. 0.115 = 11.5%), cost_of_equity_pct: number (e.g. 11.5), inputs }. PARAMETERS: risk_free_rate (required): Risk-free rate as a decimal, e.g. 0.04 = 4% (typically the 10-year government bond yield; never pass percentage points). beta (required): Equity beta (levered, if the company has debt), e.g. 1.2. Use unlevered/relevered betas when comparing capital structures. market_return (required): Expected market return (Rm) as a decimal, e.g. 0.10 = 10% (never pass percentage points). The market risk premium is computed internally as Rm - Rf.
Input schema (server-provided preview — do not copy)
{
"type": "object",
"required": [
"beta",
"market_return",
"risk_free_rate"
],
"properties": {
"beta": {
"type": "number",
"description": "Equity beta (levered, if the company has debt), e.g. 1.2. Use unlevered/relevered betas when comparing capital structures."
},
"market_return": {
"type": "number",
"description": "Expected market return (Rm) as a decimal, e.g. 0.10 = 10% (never pass percentage points). The market risk premium is computed internally as Rm - Rf."
},
"risk_free_rate": {
"type": "number",
"description": "Risk-free rate as a decimal, e.g. 0.04 = 4% (typically the 10-year government bond yield; never pass percentage points)."
}
}
}