According to CAPM Estimates,what Is the Cost of Equity for a Firm

question 4

Multiple Choice

According to CAPM estimates,what is the cost of equity for a firm with a 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%

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Definitions:

Least Squares Regression

A statistical method for estimating the relationship between variables by minimizing the squares of the differences between observed and predicted values.

Relationship

A connection, association, or involvement between two or more variables or entities.

Standard Error

The standard deviation of the sampling distribution of a statistic, most commonly the mean.

Regression Slope

Indicates the steepness and direction of the linear relationship between two variables on a regression plot.