Question

The common stock of Contemporary Interiors has a beta of 1.13 and a standard deviation of 21.4 percent. The market rate of return is 12.7 percent and the risk-free rate is 4.1 percent. What is the cost of equity for this firm?

A. 11.76 percent
B. 14.40 percent
C. 12.08 percent
D. 13.05 percent
E. 13.82 percent

Answer 1

E. 13.82 percent

Step-by-step explanation:

Calculation for the cost of equity for this firm

Cost of equity= .041 + 1.13 × (.127-.041)

Cost of equity= .1382*100

Cost of equity=13.82

Therefore the Cost of equity for this firm will be 13.82%