In: Finance
A company owns common stocks with a beta coefficient of 1.2. If the cost of equity is 13% and the expected market return is 11% what is the risk-free rate?
Given
Beta= 1.2
Cost of equity = 13%
E(Rm)= 11%
Using CAPM
13%= risk free rate + 1.2(11- risk free rate)
solving for risk free rate
risk free rate = 1%