A Firm Has an Equity Beta of 1

question 101

True/False

A firm has an equity beta of 1.3. If the market risk premium is 6% and the long-term Government of Canada bond rate is 6%, the firm's cost of equity is 12%.

---

Definitions:

Interest Rate

The percentage of a sum of money charged for its use, typically expressed as an annual percentage rate.

Interest Rate

The percentage of a loan amount charged by lenders to borrowers for the use of money, or the rate earned on deposit accounts.

Net Present Value

A method used in capital budgeting to analyze the profitability of an investment by calculating the difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Present Value

The present value of a future amount of money or a series of cash flows, discounted by a certain rate of return.