Question

The risk free rate is 4%

The expected return on the market is 9%.
A company has a cost of capital ke of 7.5%
What is the company Beta factor?

Answer 1

The company's Beta factor is 0.7.

Step-by-step explanation:

Beta is a measure of a company's systematic risk, or the risk that is inherent to the entire market. It compares the volatility of a company's stock returns to the overall market. The formula to calculate beta is:

Beta = (Return on the Stock - Risk Free Rate) / (Return on the Market - Risk Free Rate)

Using the given information, we can calculate:

1. Expected Return on the Stock = 7.5%
2. Expected Return on the Market = 9%
3. Risk Free Rate = 4%

Plugging these values into the formula, we get:

Beta = (7.5% - 4%) / (9% - 4%)

Beta = 3.5% / 5%

Beta = 0.7