Booher Book Stores has a beta of 1.2. The yield on a 3-month T-bill is 4% and the yield on a 10-year T-bond is 6%. The m...
Booher Book Stores has a beta of 1.2. The yield on a 3-month T-bill is 4% and the yield on a 10-year T-bond is 6%. The market risk premium is 5.5%, and the return on an average stock in the market last year was 15%. What is the estimated cost of common equity using the CAPM?
Homework Answers
| As per CAPM |
| expected return = risk-free rate + beta * (Market risk premium) |
| Expected return% = 6 + 1.2 * (5.5) |
| Expected return% = 12.6 |
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