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The cost of equity can be estimated using the Bond yield plus risk premium approach model....

The cost of equity can be estimated using the Bond yield plus risk premium approach model. Please explain me what data i need from the company's annual report to calculate the Bond Yield which i will use in the computation of the cost of equity. Kindly provide me with a real example and proper justification when calculating the bond yield.

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Answer #1

You should see which straight bonds (not callable or puttable) are outstanding from company's annual report. Once you see them, go to any website such as yahoo finance or finra or morningstar to get the details about those bonds.

You need Price, Coupon, Time left till maturity, Face Value.

Using excel or financial calculator
calculate the yield to maturity of the bond

This will be bond yield

risk premium is generally assumed to between the range of 4%-6%.

Add the two and it will be the cost of equity

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