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Cost of common equity

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Booher Book Stores has a beta of 0.8. The yield on a 3-month T-bill is 4% and the
yield on a 10-year T-bond is 6%. The market risk premium is 5.5%, but the stock
market return in the previous years was 15%. What is the estimated cost of common
equity using the CAPM?

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Solution Summary

The solution explains how to calculate the cost of common equity using CAPM

Solution Preview

Using CAPM
Cost of equity = Rf + (Rm-Rf) beta where
Rf = risk free ...

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