Assuming the CAPM or One-Factor Model Holds, What Is the Cost

question 1

Multiple Choice

Assuming the CAPM or one-factor model holds, what is the cost of equity for a firm if the firm's equity has a beta of 1.2, the risk-free rate of return is 2%, the expected return on the market is 9%, and the return to the company's debt is 7%?

• A)10.4%
• B)10.8%
• C)12.8%
• D)14.4%
• E)None of the above.

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