Managerial Finance_Fall 2017_Section 1 (9:00-9:50 AM) Homework: Homework 8_Chapt

Question

Managerial Finance_Fall 2017_Section 1 (9:00-9:50 AM) Homework: Homework 8_Chapter 9 Score: 0 of 2 pts P9-9 (similar to Sav 3015(O complete) Hw Score: 0%, 0 of 9 Question Help cost of common stock equity-CAPM J&M; Corporation common stock has a beta, b, of 1.4. The risk-free rate is 8%, and the market return is 13%. a. Determine the risk premium on J&M; common stock b. Determine the required return that J&M; common stock should provide c. Determine J&M;'s cost of common stock equity using the CAPM a a. The risk premium on JEM common stock S% (Rond toone decirnal place) Enter your answer in the answer box and then click Check Answer 2 To see what to study next, go to your Study Plan O Type here to search

Explanation / Answer

a.Risk premium=MArket rate-risk free rate

=(13-8)=5%

b.Required return=Risk free rate+Beta*MArket Risk premium

=8+(1.4*5)=15%

c.cost of equity=Risk free rate+Beta*(MArket rate-risk free rate)

=8+1.4*(13-8)=15%

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