Question

XYZ, Inc. has a beta of 1.06. The risk-free rate is 6 percent and the expected return of the market is 15.25 percent. What is XYZ’s cost of equity using the CAPM? (Round to one decimal place.)
a 9.3%
b. 5.7%
c. 15.8%
d. 16.2%

Answer 1

Answer:

15.8%.

Explanation:

Calculation for XYZ's cost of equity using the CAPM

Using this formula

Cost of equity = Rrf + βi[E(Rm) - Rrf]

Let plug in the formula

Cost of equity= 6% + 1.06×[15.25% - 6%]

Cost of equity= 6% + 1.06×9.25%

Cost of equity= 15.8%

Therefore the Cost of equity will be 15.8%