The CAPM formula is: Cost of Equity = Risk-Free Rate + (Beta * Market Risk Premium) Risk-free rate: This rate represents the return on a risk-free investment, often measured by government bond yields.

In addition to interest income, income funds can also generate capital gains from the sale of bonds, which are taxed like sales in equity funds, and the rate again depends on the holding period.

Unlike stocks, bonds typically involve lower risk. This is because they are less volatile than stocks; however, they usually have lower returns as well. Difference Between Stocks and Bonds ...

As you invest in debt securities, consider these critical differences between Treasury bills and Treasury bonds to make the best choice for your short-term and long-term goals.