Use the SML model to calculate the cost of equity for a firm based on the following information: the firm's beta is 1.5; the risk free rate is 5%; the market risk premium is 2%.

Name: Use the SML model to calculate the cost of equity for a firm based on the following information: the firm's beta is 1.5; the risk free rate is 5%; the market risk premium is 2%.
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Quizplus · Accepted Answer

The cost of equity using the SML model is calculated as:Cost of equity = Risk-free rate + Beta * Market risk premium= 5% + 1.5 * 2%= 5% + 3%= 8%

Use the SML Model to Calculate the Cost of Equity