HomeworkLib
Question

4.​Suppose you company has an equity beta of 1., a2nd the current risk-free rate ​​is 4.5%....

4.​Suppose you company has an equity beta of 1., a2nd the current risk-free rate ​​is 4.5%. If the expected market risk premium is 7.9%, what is your cost of equity ​capital?
business   economics   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Cost of equity= Risk free rate + Beta * Market risk premium

Hence cost of equity=4.5%+1.2 * 7.9%=4.5%+9.48%=13.98%

hence the cost of equity = 13.98%.

0 0
Add a comment
Know the answer?
Add Answer to:
4.​Suppose you company has an equity beta of 1., a2nd the current risk-free rate ​​is 4.5%....
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • A company's common stock has a beta of 11. If the risk-free rate is 4.5 percent...

    A company's common stock has a beta of 11. If the risk-free rate is 4.5 percent and the expected return on the market is 10 percent, what is the company's cost of equity capital? (Do not round your intermediate calculations.) Multiple Choice

  • 1. Suppose that QRY Corp. has an equity beta of 1.5. Current risk-free rates are 5%...

    1. Suppose that QRY Corp. has an equity beta of 1.5. Current risk-free rates are 5% and the expected return on the market portfolio is 15%. QRY Corp has a market value debt-to-equity ratio of 0.5, debt that is rated AAA, and faces a 21% tax rate. QRY Corps debt is rate AAA and has an average maturity of 10 years. Assuming that the current market price of AAA bonds paying 5% semi-annual coupon, with 10 years maturity, and par...

  • AA Corporation’s stock has a beta of 8. The risk-free rate is 4.5% and the expected...

    AA Corporation’s stock has a beta of 8. The risk-free rate is 4.5% and the expected return on the market is 13.6%. What is the required rate of return on AA’s stock? The market and Stock J have the following probability distributions: Probability                          rM                            rJ 0.2                                          12%                        16% 0.3                                          8                              7 0.5                                          20                           13 Calculate the expected rates of return for the market and Stock J. Suppose you manage a $6 million fund that consists of four stocks with...

  • 1: Assume that the risk-free rate is 4.5% and the market risk premium is 4%. What...

    1: Assume that the risk-free rate is 4.5% and the market risk premium is 4%. What is the required return for the overall stock market? Round your answer to two decimal places. % What is the required rate of return on a stock with a beta of 0.6? Round your answer to two decimal places. % 2: A stock has a required return of 16%; the risk-free rate is 3%; and the market risk premium is 6%. What is the...

  • 1. Suppose that ABC Corp. has an equity beta of 1.5. Current risk-free rates are 5%...

    1. Suppose that ABC Corp. has an equity beta of 1.5. Current risk-free rates are 5% and the expected return on the market portfolio is 15%. ABC Corp has a market value debt-to-equity ratio of 0.5, debt that is rated AA, and faces a 21% tax rate. Assuming that the credit spread on AA debt is 2%, compute ABC Corps WACC? Enter your answer as a percent without the % sign. Round to two decimals. 2. Suppose that QRY Corp....

  • Suppose your company has a beta of 1.5. The market risk premium is expected to be...

    Suppose your company has a beta of 1.5. The market risk premium is expected to be 9% and the current risk-free rate is 3%. We have used analysts' estimates to determine that the market believes our dividends will grow at 5% per year and our last dividend was $2.5. Our stock is currently selling for $45. What is the cost of equity under the CGDM?

  • You are tasked with estimating the cost of capital for a firm. The risk-free rate is...

    You are tasked with estimating the cost of capital for a firm. The risk-free rate is 3%, the expected rate of return on the market is 10.7%. Now, another similar company (similar unlevered cost of capital) has a debt-to-equity ratio of 1 to 4. It has a debt beta near zero and an equity market-beta of 1.7. Your own firm has more debt, for a debt-to-equity ratio of 1 to 1, with a debt beta of 0.3. What is a...

  • A common stock has an equity beta of .60. The risk-free rate of return is 3%...

    A common stock has an equity beta of .60. The risk-free rate of return is 3% and the expected return on the market portfolio is 10%. What is the cost of equity capital?

  • The Allegheny Valley Power Company common stock has a beta of 0.80. If the current risk-free...

    The Allegheny Valley Power Company common stock has a beta of 0.80. If the current risk-free rate is 6.5% and the expected return on the stock market as a whole is 16%, determine the cost of equity capital for the firm (using the CAPM)

  • The common stock has a beta of 1.2. The risk-free rate is 5 percent and the...

    The common stock has a beta of 1.2. The risk-free rate is 5 percent and the expected return on the market (Rm) is 11 percent (so the market risk premium is 6 percent). What is the company’s cost of equity capital? Enter your answer as a percentage rounded to 2 decimal places (e.g., enter 5.25 percent as 5.25)

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT