The cost of equity for Gruwom Corp. is 8.4%. If the return to the market is 10% and the risk-free rate is 5%, then the equity beta is:
A) 0.48.
B) 1.25.
C) 0.68.
D) 1.68.

Question

Quizplus · Accepted Answer

The cost of equity can be calculated using the Capital Asset Pricing Model (CAPM): Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Plugging in the values: 8.4% = 5% + Beta * (10% - 5%). Solving for Beta gives Beta = (8.4% - 5%) / (10% - 5%) = 0.68.

The Cost of Equity for Gruwom Corp