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    The Cost of Equity: Calculated and Discussed

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    Task: Given the beta of your company (the company in question is eBay), the present yield to maturity on U.S. government bonds maturing in one year (currently about 4.5% annually) and an assessment that the market risk premium (that is - the difference between the expected rate of return on the 'market portfolio' and the risk-free rate of interest) is 6.5%, use the CAPM equation in order to find out what is the present 'cost of equity' of your company? Explain what the meaning of the 'cost of equity' is.

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    Solution Preview

    CAPM = rf + (rp)*beta

    rf = ytm of risk free security like treasury bond = 4.5%
    rp = market risk premium = 6.5%
    beta = 2.43
    Note: No Beta figure was included, so I got the ...

    Solution Summary

    This solution is comprised of a 120 word response which illustrates how to calculate the cost of equity for eBay. All of the required formulas and variables have been included.