Homework Answers
Dear student, only one question is allowed at a time. I am answering the first question
2)
As per capital asset pricing model, Cost of equity is given by
Re = Rf + ( Rm – Rf ) x Beta
Where,
Re = Cost of equity
Rf = Risk free rate = 4.5%
Rm = Return on market = 12%
Beta = Beta of the stock = 1.3
So, putting the values in above question we get
Re = 4.5 + ( 12 – 4.5 ) x 1.3
= 4.5 + 7.5 x 1.3
= 4.5 + 9.75
= 14.25%
So, as per above discussion, option B is the correct option
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