Assume the beta for a company's stock is 0.75 and that the risk-free rate is 5.0 percent, whereas the expected return on the market is 8.0 percent. The company's cost of equity using CAPM is closest to:

Question

Quizplus · Accepted Answer

The cost of equity using the Capital Asset Pricing Model (CAPM) is calculated as: Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: 5.0% + 0.75 * (8.0% - 5.0%) = 5.0% + 0.75 * 3.0% = 5.0% + 2.25% = 7.25%.

Assume the Beta for a Company's Stock Is 0