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

question 102

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%

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Definitions:

Variable Expense

Expenses that change in proportion to the activity of a business, such as costs for raw materials or production supplies.

Sales Budget

A sales budget estimates the expected sales revenue for a certain period, projecting quantities sold and revenues earned.

Depreciation

The accounting process of allocating the cost of a tangible asset over its useful life.

Merchandise Inventory

Goods that a retailer, wholesaler, or distributor holds for the purpose of resale.