A company owns common stocks with a beta coefficient of 1.2. If the cost of equity...

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?

Solutions

Expert Solution

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%

jeff jeffy answered 2 years ago

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