Question

TJ Co stock has a beta of 1.60, the current risk-free rate is 5.90 percent, and the expected return on the market is 14.15 percent. What is TJ Co's cost of equity?

• 19.10%

• 28.54%

• 32.08%

• 21.65%

Answer 1

A. 19.10%

TJ Co's cost of equity = Risk-free rate + Beta(Expected return on the market - Risk-free rate)

TJ Co's cost of equity = 0.0590 + 1.60(0.1415 - 0.0590)

TJ Co's cost of equity = 0.1910 or 19.10%