# Cost of Capital and Risk Free Rate

20. Kaui Surf Boards is seeking to raise capital from a large group of investors to expand its operations. Suppose these investors currently hold the S&P 500 portfolio, which has a volatility of 15% and an expected return of 10%. The investment is expected to have a volatility of 30% and a 15% correlation with the S&P 500. If the risk free interest rate is 4%, what Is the appropriate cost of capital for Kaui Surf Boards' expansion?

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20. Kaui Surf Boards is seeking to raise capital from a large group of investors to expand its operations. Suppose these investors currently hold the S&P 500 portfolio, which has a volatility of 15% and an expected return of 10%. The investment is expected to have a volatility of 30% ...

#### Solution Summary

Calculates cost of capital using CAPM.