how to convert monthly equity cost of capital to annually equity cost of capital

Expert Solution

Annual equity cost of capital = (1 + Monthly equity cost of capital)^12 - 1

Example: Monthly equity cost of capital = 1%

Then, the annual equity cost of capital = (1 + 0.01)^12 - 1

Annual equity cost of capital = 1.01^12 - 1

Annual equity cost of capital = 1.1268250301 - 1

Annual equity cost of capital = 0.1268250301

Annual equity cost of capital = 12.68250301%

Note that if we just multiply the monthly equity cost of capital by 12, we are not taking compounding into effect.

jeff jeffy answered 2 years ago

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