Series 79 practice questionmediumCost of Equity Calculation
Assume the risk-free rate is 3%, market risk premium is 6%, and a company’s beta is 1.5. What is the company’s cost of equity using the CAPM?
- A9.0%
- B12.0%✓ Correct answer
- C7.5%
- D19.5%
Explanation
Why B — 12.0%
Cost of equity = 3% + 1.5 x 6% = 3% + 9% = 12%. The other answers reflect common errors in multiplying or adding the wrong numbers.
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