What is the cost of equity for a firm that has a beta of 1.2 if the risk-free rate of return is 2.9 percent and the expected market return is 11.4 percent?

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Quizplus · Accepted Answer

The cost of equity can be calculated using the Capital Asset Pricing Model (CAPM) formula: Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the given values: Cost of Equity = 2.9% + 1.2 * (11.4% - 2.9%) = 2.9% + 1.2 * 8.5% = 2.9% + 10.2% = 13.1%.

What Is the Cost of Equity for a Firm That