Question

The common stock of Shaky Building Supply has a beta that is 22 percent greater than the overall market beta. Currently, the market risk premium is 9.56 percent while the U.S. Treasury bill is yielding 3.3 percent. What is the cost of equity for this firm

Answer 1

Answer:

11.7%

Explanation:

The common stock of a shaky building has a beta of 22%

The market risk premium is 9.56%

The US treasury bill is 3.3 %

Therefore the cost of equity can be calculated as follows

= 3.3/100 + (1+22/100)(9.56)

= 0.033 + (1+0.22)(9.56)

= 0.033 + 1.22×9.56

= 0.033 + 11.6632

= 11.7%