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Cost of equity for American Express

First, the cost of equity is often used in valuing the stocks of a company. Second, CAPM is stated as follows:
Rj - RF = ?j [RM - RF]
or
Rj = RF + ?j [RM - RF]
Rj = expected required rate of return of an asset
RF =risk free rate
?j = systematic risk of the asset vis-à-vis the market
RM = expected required rate of return of the market portfolio

Third, CAPM needs several inputs and they are as follows:
1. Risk free rate = ??
This risk free rate is the current price yield of a 12-month United States Treasury bill (Bloomberg, 2011).
2. Market risk premium = ??
3. Beta ??
.
the cost of equity for Visa is computed as follows: ??
the cost of equity for Discover Financial Services; ??
the cost of equity for American Express: ??

Solution Preview

First, the cost of equity is often used in valuing the stocks of a company. Second, CAPM is stated as follows:
Rj - RF = ?j [RM - RF]
or
Rj = RF + ?j [RM - RF]
Rj = expected required rate of return of an asset
RF =risk free rate
?j = systematic risk of the asset vis-Ã -vis the market
RM = expected required rate of return of the market portfolio

Third, CAPM needs several inputs ...

Solution Summary

Solution helps in calculating cost of equity for American Express

$2.19