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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Definitions:

Slave Trade

The historical trade of enslaved individuals, primarily from Africa to the Americas, from the 16th to the 19th centuries.

Carolina

Refers collectively or individually to the U.S. states of North Carolina and South Carolina, known for their historical significance in early American history.

New England Colonists

Early European settlers in the northeastern part of the United States, particularly noted for their role in establishing some of the first successful British colonies.

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A country that is part of the United Kingdom, situated on the island of Great Britain.