Company A's Historical Returns for the Past Three Years Are

question 13

Multiple Choice

Company A's historical returns for the past three years are 6 percent, 15 percent, and 15 percent. Similarly, the market portfolio's returns were 10 percent, 10 percent, and 16 percent. Suppose the risk-free rate of return is 4 percent and that investors expect the market to return 10 percent. What is the cost of equity capital (required rate of return of company A's common stock) , computed with the CAPM?

• A)8.5 percent
• B)14.0 percent
• C)12.0 percent
• D)10.0 percent