The Up and Coming Corporation\'s common stock has a beta of 1.5. If the risk-fre

Question

The Up and Coming Corporation's common stock has a beta of 1.5. If the risk-free rate is 3 percent and the expected return on the market is 10 percent, what is the company's cost of equity capital? (Do not round your intermediate calculations.)

rev: 09_20_2012

12.82%

18%

13.5%

14.04%

14.18%

The Up and Coming Corporation's common stock has a beta of 1.5. If the risk-free rate is 3 percent and the expected return on the market is 10 percent, what is the company's cost of equity capital? (Do not round your intermediate calculations.)

Explanation / Answer

The Up & Coming Details Stock Beta=1.5 Risk Free Rate=Rf=3% Required Market Return=Rm=10% Assume Required return of stock=Rs As Per CAPM; Rs=Rf+(Rm-Rf)*Beta =3% +7%*1.5 =13.5% So Stock Return Rate =13.5%

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