Estimating the cost of equity
This free course, Estimating the risk and return of a share, examines how investors determine the return they expect from investing in shares (also known as equities). The course looks at how the ‘risk-free’ rate of return is determined and at how investors calculate the equity risk premium (ERP) for shares. Collectively these two factors determine the return expected from investing in the equity market. The course also shows how the Dividend Valuation Model (DVM) can be used as an alternative for deriving the expected return on shares. The course therefore provides a basis for understanding how shares are priced.
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In this free course we examine the factors that determine the return sought by investors when buying shares. This expected return takes into account the perceived risks of investing in different shares.
Section 1 of this course should be used in conjunction with the activities provided in Sections 2 to 5. The latter will help you develop and test your understanding of the concepts and issues covered.