National Home Rentals has a beta of 1.24,a stock price of $22,and recently paid an annual dividend of $0.94 a share.The dividend growth rate is 4.5 percent.The market has a 10.6 percent rate of return and a risk premium of 7.5 percent.What is the firm's cost of equity?

Question

Quizplus · Accepted Answer

R_e = (0.106 - 0.075) + (1.24 × 0.075) = 0.124R_e = [($0.94 × 1.045)/$22] + 0.045 = 0.08965R_{e Average} = (0.124 + 0.08965)/2 = 10.68 percent

National Home Rentals Has a Beta of 1