Smathers Corporation stock has a beta of 1.12. The market risk premium is 7.90 percent and the risk-free rate is 3.27 percent annually. What is the company's cost of equity? 7.99% 8.22% 10.29% 12.12% 8.46% B) Rossdale Company stock currently sells for $70.67 per share and has a beta of 1.12. The market risk premium is 7.90 percent and the risk-free rate is 3.27 percent annually. The company just paid a dividend of $3.89 per share, which it has pledged to increase at an annual rate of 3.65 percent indefinitely. What is your best estimate of the company's cost of equity? 8.46% 9.60% 10.74% 11.56% 10.01% C) Bethesda Water has an issue of preferred stock outstanding with a coupon rate of 4.50 percent that sells for $91.82 per share. If the par value is $100, what is the cost of the company's preferred stock? Multiple Choice 5.31% 4.90% 4.50% 4.60% 4.70%
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Smathers Corporation stock has a beta of 1.12. The market risk premium is 7.90 percent and the risk-free rate is 3.27 percent annually. What is the company's
-
7.99%
-
8.22%
-
10.29%
-
12.12%
-
8.46%
B)
Rossdale Company stock currently sells for $70.67 per share and has a beta of 1.12. The market risk premium is 7.90 percent and the risk-free rate is 3.27 percent annually. The company just paid a dividend of $3.89 per share, which it has pledged to increase at an annual rate of 3.65 percent indefinitely. What is your best estimate of the company's cost of equity?
-
8.46%
-
9.60%
-
10.74%
-
11.56%
-
10.01%
C)
Bethesda Water has an issue of
preferred stock outstanding with a coupon rate of 4.50 percent that sells for $91.82 per share. If the par value is $100, what is the cost of the company's preferred stock?Multiple Choice-
5.31%
-
4.90%
-
4.50%
-
4.60%
-
4.70%
-
-
STEP 1
The return a company theoretically gives to its equity investors, or shareholders, in order to make up for the risk they assume by investing their money, is known as the cost of equity. For a business to function and expand, it needs funding from other sources.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
