I am attempting to brnig CAPM to life by finding the cost of equity for a specific investment I am taking. I am having trouble finding inputs for the CAPM formula, namely I need to find online the:
–> Risk Free Rate --> Return of the market
Which website should I use to find these numbers to plug into my formula and what securities am I looking at? I tried for example to take the S&P 500 for the return of the market, the current YTD is around 17%, but is it proper to take the YTD? Also, how do I find the risk free rate of the United States?
Sorry for the amateur questions, but I am having trouble extracting these numbers.
Capital cost needs to be calculated from the yield curve for specific maturities brah. There is no such thing as “the risk free rate of the US”. “Equity risk premium” also is not a static number. Sometimes, people will accept a lower return for risk. Sometimes, they will want a higher return. You can be all academic and derive the value from long term estimates, but ultimately, it depends on what year and what circumstances you are doing the analysis in.
Realistically, most so called “analysts” just assume 7% to 8% market return per year, and then solve backwards for inputs that give them that result. Apparently, they get paid money for that too.