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Cost of common equity using CAPM

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Booher Book Stores has a beta of .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?

The answer is 10.4% but I would like to confirm how it is worked.

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Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
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