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Afina-wow [57]
2 years ago
6

What is the cost of equity for a firm that has a beta of 1.2 if the risk-free rate of return is 2.9 percent and the expected mar

ket return is 11.4 percent?
Business
1 answer:
Gnesinka [82]2 years ago
8 0

13.1$ is the cost of equity for a firm that has a beta of 1.2 if the risk-free rate of return is 2.9 percent and the expected market return is 11.4 percent.

The cost of equity of a firm represents the compensation that the market demands in exchange for the asset ownership and bearing its risk. The traditional formula which comprises the cost of equity is the dividend capitalization model as well as the capital asset pricing model (CAPM).

Using the CAPM model or capital asset pricing model which determines the cost of equity financing would be equated as

Cost of Equity = Risk-Free Rate of Return + Beta × (Market Rate of Return – Risk-Free Rate of Return)

Here, the risk-free rate determines the minimum rate of return, to which the excess return is added.

Beta is referred to as the standard CAPM measure of systematic risk and has the tendency for the return of a security to move parallel with the whole return of the stock market.

In the CAPM model, the market return of an asset is the risk-free rate plus the premium which is multiplied by the beta of the asset.

So, here risk-free rate return RF=2.9

The expected market rate of return RM=11.4

Beta (β) =1.2

According to the CAPM model,

Cost of equity Re =RF+ β(RM-RF)

=2.9+1.2(11.4-2.9)

=2.9+10.2

=13.1

Therefore 13.1$ is the cost of equity.

Learn to know more about the estimation of the cost of equity by the CAPM model at,

brainly.com/question/13086476

#SPJ4

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a group of students is measuring the numbers of papers bag brought to a recycling center in a single day. what are the students
Kitty [74]

If a group of students are measuring the number of paper bags brought to a recycling center in a single day, they are collecting data.


Stating a hypothesis is making an educated guess as to how many bags would be brought to the recycling center each day.


Drawing a conclusion would be when all of the data has been collected and examined.


Analyzing data would be going back to look at the collected data from the research project to see if the hypothesis was correct, what determinations were made and if any discoveries were made.



7 0
3 years ago
His income increased dramatically;from$5000 a year to $60,000 a year. Jim decides that instead of using the bus, he would buy a
svet-max [94.6K]

Answer:

This implies that bus is an inferior good and car is a normal good.

Explanation:

Initially, Jim's income was $5000 a year.

As his income increases to $60,000 a year, he decides to buy a car instead of using the bus.  

In other words, with the increase in income, the demand for traveling by bus is declining.  

This implies that it is an inferior good.  

The demand for the car is increasing with an increase in income.  

So, the car is a normal good.  

An inferior good can be defined as a product that shows negative elasticity. This means with an increase in income its demand declines an vice versa.

A normal good can be defined as a product that shows positive income elasticity. That is, its demand increases with rise in income and vice versa.

4 0
3 years ago
Why is it important for a nail care provider to learn and understand the structure and function of the nails?
melomori [17]

Answer:

Learning to know and recognize the Anatomy of the Nail is very important, whether for those who work in the Nails sector and every day must take care (even if only Aesthetically) of the Nails of their Customers, and for those who are simply passionate to the topic or prefer to independently take care of their Hands and Feet!

Explanation:

3 0
2 years ago
Windathon, Inc. expects sales volume totaling $500,000 for June. Data for the month follows:
ivann1987 [24]

Answer:

Here the variable cost can be computed using the following formula:

Variable cost = (Sales commissions  + Shipping expense + Miscellaneous selling expenses) ×Sales

Variable cost = (4% + 1% + 3/4%) x $500,000 = $28,750

Fixed cost = Sales manager's salary + Advertising expense + Miscellaneous selling expenses

= $30,000 + $25,000 + $2,100

= $57,100

<em>Total selling expense budget = Variable cost + Fixed cost</em>

<em>= $28,750 + $57,100 </em>

<em>= $85,850</em>

8 0
3 years ago
Indicate whether the situation below will lead to a surplus, shortage, or neither.
Masteriza [31]

If the price of a product falls to what is considered a bargain price, a shortage would occur.

A shortage occurs when the quantity demanded exceeds the quantity supplied. A shortage occurs when price is below the equilibrium price.

A surplus is when the quantity supplied exceeds the quantity demanded. A surplus occurs when price is above the equilibrium price.

When the price of a good falls to what is considered a bargain price by consumers, it means that the price of the good is below the equilibrium price.

When the price of a good is below equilibrium, quantity supplied would fall and the quantity demanded would exceed supply. As a result, there would be a shortage.

To learn more about shortage, please check: brainly.com/question/16137233?referrer=searchResults

4 0
2 years ago
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