Question

Crane Industries common stock has a beta of 1.5. If the market risk-free rate is 3.6 percent and the expected return on the market is 8.0 percent, what is Crane’s cost of common stock? (Round answer to 1 decimal places, e.g. 15.2%.)

Cost of common stock____%

Answer 1

As per CAPM

Cost of common stock %= risk-free rate + beta * (expected return on the market - risk-free rate)

= 3.6 + 1.5 * (8 - 3.6)

= 10.2%