Answer:
9.4%
Step-by-step explanation:
using the CAPM formula, the cost of equity (Re) is:
Re = Rf + B(Rm - Rf)
- Rf = risk free rate = 4%
- Rm = market risk = 10%
- B = beta = 0.9
Re = 4% x [0.9 x (10% - 4%)] = 4% x (0.9 x 6%) = 4% x 5.4% = 9.4%
The cost of equity (Re) refers to the required rate of return that investors expect to receive from a certain investment, e.g. stocks or any particular project