Treasury bills are currently yielding 3%, the expected market return is 15%, the bank rate is 4%, and the firm's beta is 0.9. Calculate the cost of capital for this firm.
A) 13.8%
B) 13.9%
C) 13.6%
D) 12%

Question

Quizplus · Accepted Answer

The cost of equity can be calculated using the Capital Asset Pricing Model (CAPM), which is given by the formula: Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: Cost of Equity = 3% + 0.9 * (15% - 3%) = 3% + 0.9 * 12% = 3% + 10.8% = 13.8%.

Treasury Bills Are Currently Yielding 3%, the Expected Market Return