contestada

Assuming the CAPM or one-factor model holds, what is the cost of equity for a firm if the firm's equity has a beta of 1.2, the risk-free rate of return is 2%, the expected return on the market is 9%, and the return to the company's debt is 7%?
A. 10.4%.
B. 10.8%.
C. 12.8%
D. 14.4%.
E. none of the above.

Respuesta :

Parrain

Answer: A. 10.4%

Explanation:

Using the Capital Asset Pricing Model (CAPM), the cost of equity is:

= Risk free rate + Beta * (Expected return on market - Risk free rate)

= 2% + 1.2 * (9% - 2%)

= 2% + 1.2 * 7%

= 2% + 8.4%

= 10.4%

Tundexi

The Cost of equity equals 10.4%.

Given information

Beta of 1.2

Risk-free rate of return is 2%

Expected return on the market is 9%,

Debt is 7%

Using the Capital Asset Pricing Model (CAPM), the cost of equity is calculated as follows:

Cost of equity = Risk free rate + Beta * (Expected return on market - Risk free rate)

Cost of equity = 2% + 1.2 * (9% - 2%)

Cost of equity = 2% + 1.2 * 7%

Cost of equity = 2% + 8.4%

Cost of equity = 10.4%

Hence, the Cost of equity equals 10.4%.

Read more about this here

brainly.com/question/25760702

Otras preguntas