Question

The Rhaegel Corporation’s common stock has a beta of 1.7. If the risk-free rate is 5.7 percent and the expected return on the market is 11 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

the cost of equity capital as per CAPM is 14.71%

Step-by-step explanation:

The computation of the cost of equity capital as per CAPM is shown below:

As we know that

= Risk free rate of return + beta × (market rate of return - risk free rate of return)

= 5.7% + 1.7 × (11% - 5.7%)

= 5.7%+ 1.7 × 5.3%

= 5.7% + 9.01%

= 14.71%

hence, the cost of equity capital as per CAPM is 14.71%

The same is relevant