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Do Homework - Cristian Clementi - Google Chrome Secure | https://www.mathxl.com yerHomework.aspx?homeworkId=448 577574&questionld; = 1 &flushed; = false&cld-4704237;&centerwin; =yes FIN-350-MWF1230A-Fundamentals of Business Financs Cristian Clementi 12/4/17 1:31 PM Homework: Module 7: Chapter 9 Score: 0 of 5 pts P9-9 (similar to) Save 3 of 8 (0 complete ) | HW Score: 0%, 0 of 40 pts Question Help cost ot common stock equity. CAPM J&M; Corporation common stock has a beta, b, of 1.8. The risk-free rate is 9%, and the market retum is 16% 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. The risk premium on J&M; common stock is Enter your answer in the answer box and then click Check Answer Clear All Check Answer emaining 1:32 PM O Type here to search ^ · 4x 12/4/2017 EB) |

Explanation / Answer

a.Risk premium=Market rate-Risk free rate

=(16-9)=7%

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

=9+1.8*7=21.6%

c.Cost of equity=Risk free rate+Beta*(Market rate-Risk free rate)

=9+1.8*(18-9)=21.6%

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