1ESTIMATING RISK PARAMETERS AND COSTS OF FINANCING2Cost of EquityThe cost of equity is the rate of return investors require on an equity investmentin a firm.Expected Return=Riskless rate+Beta(Risk Premium)This expected return to equity investors includes compensation for the market risk in the investment and is the cost of equity.3BetasIn the CAPM,the beta of an investment is the risk that the investment adds to amarket portfolio.In the APM and Multi-factor model,the betas of the investmentrelat
