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Simora [160]
2 years ago
8

The common stock of ABC, Inc., has a beta of 1.13 and a standard deviation of 21.4 percent. The market rate of return is 12.7 pe

rcent and the risk-free rate is 4.1 percent. What is the cost of equity for this firm
Business
1 answer:
harina [27]2 years ago
7 0

Answer:

The appropriate answer is "13.82%".

Explanation:

Given:

Risk free rate,

R_f=4.10

Beta of stock,

\beta=1.13

Market rate,

= 12.7

Now,

The market risk premium will be:

⇒ R_p = Market \ rate-Risk \ free \ rate

        = 12.7-4.1

        = 8.60 (%)

hence,

The cost of equity will be:

⇒ r=R_f+\beta\times R_p

      =4.10+1.13\times 8.60

      =4.10+ 9.718

      =13.82 (%)

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