Share
Explore BrainMass

Beta and Cost of Equity Capital

Calculate the beta and the cost of equity capital. The following historical data for a proxy firm is similar to the firm evaluated in the final project assignment.

Year Market Rate of Return Firm Rate of Return
20X0 25% 15%
20X1 10% 6%
20X2 15% 9%
20X3 20% 12%

Using the above data calculate the beta of the firm.
If the risk-free rate is 4%, and the market rate of return is 14%, calculate the required rate of return (cost of equity) for the stock using CAPM.

Solution Preview

Please see attached file

calculate the beta and the cost of equity capital. The following historical data for a proxy firm is similar to the firm evaluated in the final project assignment.

Year     Market Rate of Return       Firm Rate of Return
20X0            25%                          15%  
20X1            10%                           6%
20X2            15%                           9%
20X3            20%                          12%

Using the above data calculate the beta of the firm.
If the risk-free ...

Solution Summary

Calculates Beta and Cost of Equity Capital.

$2.19