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The common stock of Initiative Fencing, Inc. has a beta of 0.5 and a standard deviation...

The common stock of Initiative Fencing, Inc. has a beta of 0.5 and a standard deviation of 108.0 percent. The market rate of return is 9.1 percent and the risk-free rate is 1.6 percent. What is the cost of equity for this firm? (enter your answer as a percentage; i.e. 14% as 14)

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Answer #1

Based on CAPM,

Cost of Equity = Risk free rate + Beta * (Expected market return - Risk free rate)

Cost of Equity = 1.6% + 0.5 * (9.1% - 1.6%)

Cost of Equity = 1.6% + 3.75%

Cost of Equity = 5.35%

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