Question

The Graber Corporation’s common stock has a beta of 1.6. If the risk-free rate is 5.6 percent and the expected return on the market is 10 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of equity capital %

Answer 1

Answer:Ke = Rf + B (Rm-Rf)

Ke = 5.6 + 1.6 (10-5.6)

Ke = 5.6 + 7.0

Ke = 12.64% Explanation:

Cost of equity equals risk-free rate but the market risk premium. Market risk premium is the product of beta and the difference between market return and risk free rate.