94.5k views
3 votes
Steady​ Company's stock has a beta of . If the​ risk-free rate is and the market risk premium is ​, what is an estimate of Steady​ Company's cost of​ equity?

1 Answer

5 votes

The question is incomplete as it misses the figures. The following is the complete question.

Steady Company's stock has a beta of 0.21. If the risk-free rate is 6.2% and the market risk premium is 6.9%, what is an estimate of Steady Company's cost of equity?

Answer:

The cost of equity is 0.07649 or 7.649%

Step-by-step explanation:

The required rate of return or cost of equity capital is the rate required by the investors to invest in a stock based on the systematic risk of the stock as measure by the beta. The required rate of return or cost of equity can be calculated using the CAPM equation. The CAPM equation is,

r = rRF + Beta * rpM

Where,

  • rRf is the risk free rate
  • rpM is the risk premium on market

r = 0.062 + 0.21 * 0.069

r = 0.07649 or 7.649%

User Rabel Ahmed
by
8.6k points

No related questions found