Assume that Rf = 5 and Km=10.5 percent. Compute Kj for the following betas, using an increase in interest rates changes Rf to 6.0 percent, and the market risk premium (Km-Rf) changes to 7.0 percent. Compute Kj for the three betas of 0.6, 1.3 and 1.9© BrainMass Inc. brainmass.com June 3, 2020, 10:12 pm ad1c9bdddf
Please find my response below.
1. Rf = 5%; Km = 10.5%, Risk Premium = 10.5-5=5.5%
The solution calculates the cost of capital using CAPM. The calculations are shown in the response and are very easy to understand. Overall, a great response.