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Ice Co stock has a beta of 1.78, the current risk-free rate is 5.03 percent, and the expected return on the market is 15.03 percent. What is Ice Co's cost of equity?

1 Answer

1 vote

Answer:

22.83%

Step-by-step explanation:

Cost of Equity =
R_(f) + \beta(R_(m) - R_(f))

where
R_(f) = risk free rate,


\beta = beta of equity


R_(m) = expected return on the market.

Therefore, Ice Co cost of equity

= 5.03% + 1.78(15.03% - 5.03%)

= 0.0503 + 1.78(0.1503-0.0503)

= 0.0503 + (1.78 * 0.1)

= 0.0503 + 0.178

= 0.2283

= 22.83%

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