JaiLai Cos. stock has a beta of 0.6, the current risk-free rate is 6.4 percent, and...

Question

Question

JaiLai Cos. stock has a beta of 0.6, the current risk-free rate is 6.4 percent, and the expected return on the market is 12 percent.

What is JaiLai’s cost of equity? (Round your answer to 2 decimal places.)

Cost of equity

%

Answer 1

Answer #1

Using the CAPM model,

ER_i = R_f + β(ER_m - R_f)

where,

ER_i = Expected cost of equity
R_f = Risk-free rate = 6.4%
β = Beta of the investment = 0.6
ER_m = Expected return of market = 12%

=> ER_i = 6.4 + 0.6(12 - 6.4) = 9.76%

Answer 2

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