Assume the beta for a company's stock is 2.00 and that the risk-free rate is 4.5 percent, whereas the expected return on the market is 10.0 percent. The company's cost of equity for internal funds using CAPM is closest to:

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Quizplus · Accepted Answer

The cost of equity can be calculated using the Capital Asset Pricing Model (CAPM) formula: Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: 4.5% + 2.00 * (10.0% - 4.5%) = 4.5% + 2.00 * 5.5% = 4.5% + 11% = 15.5%.

Assume the Beta for a Company's Stock Is 2