Question 6 Suppose your company has an equity beta of 1.0 and the current risk-f

Question

Question 6

Suppose your company has an equity beta of 1.0 and the current risk-free rate is 6.0%. If the expected market risk premium is 8.6%, what is your cost of equity capital?

8.1%

9.6%

10.3%

14.6%.

Question 7

A stock sells for $20 per share, its next dividend expected to pay (D1) is $1.00, and its growth rate is a constant 6%. What is its cost of common stock?

5.3%

11.0%

11.3%

11.6%

8.1%

9.6%

10.3%

14.6%.

Question 7

A stock sells for $20 per share, its next dividend expected to pay (D1) is $1.00, and its growth rate is a constant 6%. What is its cost of common stock?

5.3%

11.0%

11.3%

11.6%

Explanation / Answer

question 6:

d.14.6%

cost of equity capita using CAPM

=> risk free rate + beta *( market premium )

=>6.0% + 1.0 *(8.6%)

=>14.60%.

question 7

b.11.0%

cost of common stock = (D1 / P) + g

=> ($1 / $20) + 0.06

=>0.05 + 0.06

=>0.11

=>11%

Related Questions

Navigate

• Browse (All)
• Browse Q
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.