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Cost of equity using CAPM

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A company has a Beta of 1.12, the present yield to maturity on U.S. Government bonds maturing in one year is currently about 4.5% annually and an assessment that the market risk premium is 6.5%. Use the CAPM equation to find what is the present cost of equity for the company and what is the meaning of the cost of equity?

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A company has a Beta of 1.12, the present yield to maturity on U.S. Government bonds maturing in one year is currently about 4.5% annually and an assessment that the market risk premium is 6.5%. ...

Solution Summary

The solution uses the CAPM equation to find the present cost of equity for the company.

$2.19