Question

The yield on a three-month T-bill is 3.29%, and the yield on a 10-year T-bond is 4.67%. the market risk premium is 6.17%. The Allen Company has a beta of 0.92. Using the Capital Asset Pricing Model (CAPM) approach, Allen’s cost of equity is

Answer 1

Answer:

10.35 %

Explanation:

Using the Capital Asset Pricing Model (CAPM) approach, Allen’s cost of equity is

Cost of Equity = 4.67% + 0.92 x 6.17%

                         = 10.35 %