9. Assuming the CAPM or one-factor model holds, what is the cost of equity for a
ID: 2635804 • Letter: 9
Question
9.
Assuming the CAPM or one-factor model holds, what is the cost of equity for a firm if the firm's equity has a beta of 1.2, the risk-free rate of return is 4%, the expected return on the market is 10%, and the return to the company's debt is 7%?
A.
11.2%
B.
11.4%
C.
12.8%
D.
12.9%
e. none of the above
E.
None of these.
9.
Assuming the CAPM or one-factor model holds, what is the cost of equity for a firm if the firm's equity has a beta of 1.2, the risk-free rate of return is 4%, the expected return on the market is 10%, and the return to the company's debt is 7%?
A.
11.2%
B.
11.4%
C.
12.8%
D.
12.9%
e. none of the above
E.
None of these.
Explanation / Answer
CAPM (Capital Asset Pricing Model) = Expected Return = Risk free rate + Beta [Return on market
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