TJ Co. stock has a beta of 1.45, the current risk-free rate is 5.75, and the expected return on the market is 14 percent. What is TJ Co's cost of equity?
A) 17.71 percent
B) 21.20 percent
C) 26.05 percent
D) 28.64 percent

Question

Quizplus · Accepted Answer

The cost of equity can be calculated using the Capital Asset Pricing Model (CAPM), which is given by the formula: Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: Cost of Equity = 5.75 + 1.45 * (14 - 5.75) = 5.75 + 1.45 * 8.25 = 5.75 + 11.9625 = 17.7125%, which rounds to 17.71 percent.

TJ Co Stock Has a Beta of 1