The common stock of ABC, Inc. has a beta of 0.68 and a standarddeviation of...

The common stock of ABC, Inc. has a beta of 0.68 and a standard deviation of 18.02%. The expected return on the market is 19.51% and the risk-free rate is 3.87%. What is the cost of equity for this firm?

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Expert Solution

As per CAPM model:

Re= Rf+(Rm-Rf)B

Re= required rate of return.

Rf= Risk-free rate. 3.87%

Rm = return on the market. 19.51%

Rm-Rf =Market Risk Premium.

B = Beta, systematic risk, 0.68

Re= 3.87% + 19.51%*0.68

Re = 17.14%

Cost of equity = 17.14%

jeff jeffy answered 2 years ago

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