What is the cost of equity, if the risk-free rate is 6%, the market risk premium is 9%, and beta is 1.54?
The cost of equity is 19.86%. CAPM gives the risk-free rate plus beta times the market risk premium: 6% + 1.54 × 9% = 6% + 13.86% = 19.86%.
Choose your answer
What is the cost of equity, if the risk-free rate is 6%, the market risk premium is 9%, and beta is 1.54?
Answer and explanation
Correct answer A
The cost of equity is 19.86%. CAPM gives the risk-free rate plus beta times the market risk premium: 6% + 1.54 × 9% = 6% + 13.86% = 19.86%.
Practice for these exams
-
Telangana SET (TG SET)