Question

Halestorm Corporation’s common stock has a beta of 1.20. Assume the risk-free rate is 4.5 percent and the expected return on the market is 12 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.) Cost of equity %

Answer 1

Ke = Rf + β(Rm – Rf)

Ke = 4.5 + 1.20(12-4.5)

Ke = 4.5 + 9

Ke = 13.5%

Step-by-step explanation:

Cost of equity is equal to risk-free rate plus market risk premium. Market risk premium is beta multiplied by risk premium. Risk premium is market return minus risk-free rate.