The Nixon Corporation’s common stock has a beta of .95. If the risk-free rate is 2.7...

The Nixon Corporation’s common stock has a beta of .95. If the risk-free rate is 2.7 percent and the expected return on the market is 10 percent, what is the company’s cost of equity capital? pls dont answer in excel or spreadsheet rather explain by writing in formula and stepwise

Expert Solution

Calculation of cost of equity:

Given,

Risk free rate (R_f) = 2.7%

Market return (R_m) = 10%

Beta (β) = 0.95

Cost of equity = R_f + β(R_m - R_f)

= 2.7 + 0.95(10 - 2.7)

= 2.7 + 0.95*7.3

= 2.7 + 6.935

= 9.635%

jeff jeffy answered 2 years ago

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