Question

calculate union pacific's cost of equity from the capm using it's own beta estimate and the industry beta estimate. how different are your answers? assume a risk-free rate of 2% and a market risk premium of 7%. show your work.

Answer 1

To calculate Union Pacific's cost of equity from the CAPM using its own beta estimate and the industry beta estimate, you can use the formula: Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium.

Step-by-step explanation:

To calculate Union Pacific's cost of equity from the CAPM using its own beta estimate and the industry beta estimate, you can use the formula:


Cost of Equity = Risk-Free Rate + Beta * Market Risk Premium


Using the given values of a risk-free rate of 2% and a market risk premium of 7%, you would need to substitute the beta estimates to find the cost of equity for both Union Pacific and the industry. The difference between the two answers will depend on the difference in the beta estimates.