When estimating a firm's cost of equity capital using the CAPM, you need to estimate:

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When estimating a firm's cost of equity capital using the CAPM, you need to estimate all three components - the risk-free rate of return, the expected return on the market portfolio, and the firm's beta. The risk-free rate of return represents the return that an investor can earn without taking any risk, and is typically estimated using the yield on government bonds. The expected return on the market portfolio represents the return that investors expect to earn on a diversified portfolio of stocks, and is typically estimated using historical market returns. Finally, the firm's beta measures the sensitivity of the firm's returns to changes in the market returns, and is typically estimated by comparing the firm's historical returns to those of the overall market.

When Estimating a Firm's Cost of Equity Capital Using the CAPM