Question

Halestorm Corporation’s common stock has a beta of 1.13. Assume the risk-free rate is 4.8 percent and the expected return on the market is 12.3 percent. What is the company’s cost of equity capita?

Answer 1

Answer:

13.275%

Explanation:

Using Capital Asset Pricing Model we have,

Cost of equity = Risk free return + Beta (Market return - Risk free return)

Provided risk free rate of return = 4.8%

Beta = 1.13

Market rate of return = 12.3%

Therefore cost of equity = 4.8% + 1.13 (12.3 - 4.8)

= 4.8% + 8.475%

Therefore, Halestorm Corporation's cost of equity

= 13.275%