According to CAPM Estimates, What Is the Cost of Equity

question 41

Multiple Choice

According to CAPM estimates, what is the cost of equity for a firm with beta of 1.5 when the risk-free interest rate is 6% and the expected return on the market portfolio is 15%?

• A)19.5%
• B)21.0%
• C)22.5%
• D)24.0% Expected return on stock = 6% + 1.5(15% - 6%)
• = 6 + 13.5

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Definitions:

Discretionary Responsibility

The voluntary obligation or duty of an organization to contribute to the welfare of the broader community.

Economic, Legal, Ethical Expectations

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A framework of rules, practices, and processes by which a company is directed and controlled, focusing on balancing the interests of its various stakeholders.