Question

Ice Co stock has a beta of 1.78, the current risk-free rate is 5.03 percent, and the expected return on the market is 15.03 percent. What is Ice Co's cost of equity?

Answer 1

Answer:

22.83%

Explanation:

Cost of Equity = $R_{f} + \beta(R_{m} - R_{f})$

where $R_{f}$ = risk free rate,

$\beta$ = beta of equity

$R_{m}$ = expected return on the market.

Therefore, Ice Co cost of equity

= 5.03% + 1.78(15.03% - 5.03%)

= 0.0503 + 1.78(0.1503-0.0503)

= 0.0503 + (1.78 * 0.1)

= 0.0503 + 0.178

= 0.2283

= 22.83%