Shareholders' expectation on the annual return rate on its equity in the Business:

$\begin{array}{l}\displaystyle K_E = \frac{\rm Return}{\rm E}\end{array}$

where

$\begin{array}{l}\rm Return\end{array}$	annual cash return , whether as dividends or as capital growth
$\begin{array}{l}\rm E\end{array}$	Shareholder's equity

$\begin{array}{l}\displaystyle K_E = R_f + \beta \cdot R_p\end{array}$

where

$\begin{array}{l}R_f\end{array}$	risk-free bond (like for example U.S. Treasury Bond)
$\begin{array}{l}R_p\end{array}$	risk premium $\begin{array}{l}R_p = R_m - R_f\end{array}$ , where $\begin{array}{l}R_m\end{array}$ is historical average return of the stock market
$\begin{array}{l}\beta\end{array}$	sensitivity to the market risk for the security

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See also