Question

The risk free rate currently have a return of 2.5% and the market risk premium is 5.77%. If a firm has a beta of 1.42, what is its cost of equity

Answer 1

Answer:

10.69%

Explanation:

Market risk premium = 5.77% or 0.0577

The beta = 1.42

Risk free rate = 2.5% or 0.025

Cost of equity = Risk free rate + Beta*Market risk premium

Cost of equity = 0.025 + 1.42*0.0577

Cost of equity = 0.025 + 0.081934

Cost of equity = 0.106934

Cost of equity = 10.69%