Street Corporation's common stock has a beta of 1.33. The risk-free rate is 3.4 percent and the expected return on the market is 10.97 percent. What is the cost of equity?

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 = 3.4% + 1.33 * (10.97% - 3.4%) = 3.4% + 1.33 * 7.57% = 3.4% + 10.07% = 13.47%.

Street Corporation's Common Stock Has a Beta of 1