Homework Answers
Answer: Correct answer is 17%.
Cost of capital=Risk free rate +Beta*(Market return-Risk free
rate)
Given that, beta=1.5, risk free rate is 5% and the expected return
on the market is 13%.
So, cost of capital=5% +1.5*(13%-5%)
=0.05+1.5*(0.08)
=0.05+0.12
=0.17 or 17%
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