Question

The cost of raising capital through retained earnings is the cost of raising capital through issuing new common stock. The cost of equity using the CAPM approach The current risk-free rate of return ( rRFrRF ) is 3.86% while the market risk premium is 5.75%. The Wilson Company has a beta of 0.92. Using the capital asset pricing model (CAPM) approach, Wilson’s cost of equity is:

Answer 1

Answer:

Explanation: Cost of equity can be defined as the return that the investors demand for bearing the risk of ownership in company's equity shares. It can be computed by using CAPM model which is represented as follows :-

cost of equity = risk free rate + beta *(market risk premium)

$K_e=\:R_f\:+\beta \left ( Er_m \right )$

$K_e=\:3.86\%\:+\b0.92 \left ( 5.75\% \right )$

         = 9.15%