[Verse 1] When equity costs seem hard to find There's another path to ease your mind Take the company's bond yield rate Add a premium, calculate The extra risk that shareholders bear Above what bondholders declare [Chorus] Bond yield plus the risk premium That's the equity equation Higher returns for equity's gamble Corporate finance navigation Bond yield plus the risk premium Shareholders demand compensation [Verse 2] Bondholders get their payments first When companies face financial thirst But equity holders take the chance Of profits lost in market's dance So add four percent, maybe five or six To bond yields for your equity fix [Chorus] Bond yield plus the risk premium That's the equity equation Higher returns for equity's gamble Corporate finance navigation Bond yield plus the risk premium Shareholders demand compensation [Bridge] Start with what the bonds are paying Add the extra risk you're weighing Equity's volatile ride Needs premiums to justify Simple math with market wisdom Bond plus premium equals freedom [Verse 3] If corporate bonds yield eight percent Add equity risk assessment Maybe five percent on top Thirteen percent, don't stop That's your cost of equity measure Alternative approach to treasure [Chorus] Bond yield plus the risk premium That's the equity equation Higher returns for equity's gamble Corporate finance navigation Bond yield plus the risk premium Shareholders demand compensation [Outro] Bond yield foundation, premium height Equity pricing done just right
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