Your estimate of the market risk premium is 6%.The risk-free rate of return is 4.5% and General Motors has a beta of 1.6.What is General Motors' cost of equity capital?

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Quizplus · Accepted Answer

The cost of equity capital can be calculated using the Capital Asset Pricing Model (CAPM), which is given by the formula: Cost of Equity = Risk-Free Rate + Beta * (Market Risk Premium). Plugging in the given values: Cost of Equity = 4.5% + 1.6 * 6% = 4.5% + 9.6% = 14.1%.

Your Estimate of the Market Risk Premium Is 6