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xxTIMURxx [149]
3 years ago
9

Smathers Corp. stock has a beta of 1.23. The market risk premium is 7.00 percent and the risk-free rate is 2.86 percent annually

. What is the company's cost of equity?
Business
1 answer:
Schach [20]3 years ago
6 0

Answer:

the company's cost of equity is 11.47 %.

Explanation:

The Company`s cost of equity is the return that is required by holders of Common Stocks.

The Cost can be determined using the <em>Capital Asset Pricing Model</em> (CAPM) as follows :

Cost of Equity = Return on Risk Free Rate + Beta × Return on Market Portfolio

                       = 2.86 % + 1.23 × 7.00 %

                       = 11.47 %.

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