Your estimate of the market risk premium is 7%. The risk-free rate of return is 4% and General Motors has a beta of 1.6. What is General Motors' cost of equity capital?

Name: Your estimate of the market risk premium is 7%. The risk-free rate of return is 4% and General Motors has a beta of 1.6. What is General Motors' cost of equity capital?
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Question

Quizplus · Accepted Answer

A) Apply the CAPM equation.
Cost of equity = 0.04 + (1.6 × 0.07) = 0.152 = 15.2%

Your Estimate of the Market Risk Premium Is 7