Answered: Suppose your company has an equity beta…

Suppose your company has an equity beta of 0.5 and the current risk-free rate is 6.0%. If the expected market risk premium is 8.6%, what is your cost of equity capital? 6.1% 8.6% 11.1% 10.3%.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter8: Basic Stock Valuation

Section: Chapter Questions

Problem 15MC: Assume that Temp Force has a beta coefficient of 1.2, that the risk-free rate (the yield on T-bonds)...

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Concept explainers

Treasury Market

On-the-run securities are the most recently issued securities in the market depth and are therefore traded at some premium. The off-the-run securities are the ones issued just before the most recent ones. The on-the-run securities have a lower yield to the investor than the off-the-run securities.

Question

Suppose your company has an equity beta of 0.5 and the
current risk-free rate is 6.0%. If the expected market risk
premium is 8.6%, what is your cost of equity capital?
6.1%
8.6%
11.1%
10.3%.

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