Question

Ronald's Fast Food just paid their annual dividend of $1.05 a shareThe stock has a bela of 1.6. The return on the US Treasury bill (risk-free rate ) is 8 percent the expected retum on the market is 15 percent What the cost of equity

Answer 1

Answer:

19.2 %

Explanation:

Using the Capital Asset Pricing Model we can simply input the given information.

Formula

Cost of Equity = Rf + B * (Mr - Rf) where,

Rf = Risk free rate = T-Bill rate

B = Beta

Mr = Market return

so,

Cost of Equity = 8 + 1.6 * (15-8)

= 19.2 %