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The risk free rate currently have a return of 2.5% and the market risk premium is 5.77%. If a firm has a beta of 1.42, what is its cost of equity
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36 votes
36 votes
The risk free rate currently have a return of 2.5% and the market risk premium is 5.77%. If a firm has a beta of 1.42, what is its cost of equity

User Jonathan Rioux
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1 Answer

18 votes
18 votes

Answer:

10.69%

Step-by-step explanation:

Market risk premium = 5.77% or 0.0577

The beta = 1.42

Risk free rate = 2.5% or 0.025

Cost of equity = Risk free rate + Beta*Market risk premium

Cost of equity = 0.025 + 1.42*0.0577

Cost of equity = 0.025 + 0.081934

Cost of equity = 0.106934

Cost of equity = 10.69%

User Danny Pule
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3.1k points
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