Treasury bills are currently yielding 3.5%, the expected market return is 10%, and the firm's beta is 1.50. Calculate the cost of capital for this firm.
A) 9.75%
B) 0.0625%
C) 13.25%
D) 6.25%

Question

Quizplus · Accepted Answer

The cost of capital can be calculated using the Capital Asset Pricing Model (CAPM) formula: Cost of Capital = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: Cost of Capital = 3.5% + 1.50 * (10% - 3.5%) = 3.5% + 1.50 * 6.5% = 3.5% + 9.75% = 13.25%.

Treasury Bills Are Currently Yielding 3