Question
Download Solution PDFThe risk-free rate is 6 per cent, the market risk premium is 9 per cent and the beta of share is 1.54, then what is cost of equity?
Answer (Detailed Solution Below)
Detailed Solution
Download Solution PDFThe correct answer is 20%.
Key Points The cost of equity can be calculated using the capital asset pricing model (CAPM), which is given by the formula:
Cost of Equity = Risk-Free Rate + Beta × Market Risk Premium
Given the following information:
Risk-Free Rate = 6%
Market Risk Premium = 9%
Beta = 1.54
Plugging in the values into the formula, we get:
Cost of Equity = 6% + 1.54 × 9%
Cost of Equity = 6% + 13.86%
Cost of Equity = 19.86%
Therefore, the cost of equity for the given share is 19.86%, approximately 20%.
Last updated on Jun 27, 2025
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