Estimate a firm's cost of equity if its beta is .90, the risk-free rate is 4% and the market is currently returning 11%?

Question

Quizplus · Accepted Answer

The cost of equity can be calculated using the CAPM formula:

Cost of equity = Risk-free rate + Beta * (Market return - Risk-free rate)

Plugging in the given values, we get:

Cost of equity = 4% + 0.90 * (11% - 4%)
= 10.3%

Therefore, the best choice is C) 10.3%.

Estimate a Firm's Cost of Equity If Its Beta Is