Weighted Average Cost of Capital The capital asset pricing model (CAPM)approach is to define the cost of equity for a firm by the following formula: ke=kt+βkm-k) ke expected (required)rate of return on equity Krf=rate of interest on risk-free bonds (Treasury bonds,for example) B=coefficient of systematic risk for the firm km expected (required)rate of return on the market portfolio of stocksWeighted Average Cost of Capital The capital asset pricing model (CAPM) approach is to define the cost of equity for a firm by the following formula: ke = krf + βj(km – krf) ke = expected (required) rate of return on equity krf = rate of interest on risk-free bonds (Treasury bonds, for example) βj = coefficient of systematic risk for the firm km = expected (required) rate of return on the market portfolio of stocks