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The Up and Coming Corporation's common stock has a beta of 1.85. If the risk-free rate...

The Up and Coming Corporation's common stock has a beta of 1.85. If the risk-free rate is 0.03 and the expected return on the market is 0.09, what is the company's cost of equity capital? Enter the answer with 4 decimals (e.g. 0.1234).

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Answer #1

Based on CAPM,

Expected return on stock = Risk free rate + Beta * (Expected market return - Risk free rate)

Expected return on stock = 0.03 + 1.85 * (0.09 - 0.03)

Expected return on stock = 0.03 + 0.111

Expected return on stock = 0.1410

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