The Graber Corporation’s common stock has a beta of 1.6. If the risk-free rate i

Question

The Graber Corporation’s common stock has a beta of 1.6. If the risk-free rate is 6.1 percent and the expected return on the market is 11 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

The Graber Corporation’s common stock has a beta of 1.6. If the risk-free rate is 6.1 percent and the expected return on the market is 11 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Expected return = Rf+×Rp

Rf is risk free return

Rp is risk premium

= 6.1%+1.6×(11%-6.1%)

= 13.94%

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