Calculating cost of equity and expected rate of return

If I have a company whose beta is .54,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 is 6.5%, using the CAPM equation,what is the present cost of equity of my company?

If I have 2 companies, A and B, the beta of A is .50, the beta of B is .23, if I invest 1/3 of my money in each of the stocks of these companies, What will the beta of the portfolio be? If I add my other stock with a beta of .54, what would be the expected rate of return on this portfolio be? Is this 3-stock portfolio well diversified,or does it still have risk that can be diversified away?

Required Rate of Return is given by
Kj = Rf +Beta*(Km-Rf)
= 4.5% +0.54*(6.5%)
=8.01%

Cost of equity will be 8.01%

2)
Beta (A) = 0.50
Beta ...

Solution Summary

Solution describes the use of CAPM model to calculate cost of equity a particular stock. It also explains the steps in calculating beta and expected rate of return of a portfolio.

... Other parameters used for calculating cost of equity capital ... the equation, cost of equity can be calculated. ... To calculate Accuray's cost of equity using APT ...

... First calculate the total return for the 3 months Then calculate the APR by multiplying the answer in cell B50 by 4 EAR (Effective Annual ...Cost of Equity =. ...

... 4. Calculating Returns and Standard Deviations: Based on the following information, calculate the expected return... 5. Calculating cost of equity: The Mays Co ...

...return for the 3 months 14.39% Then calculate the APR ... start with $100; then value for each year is calculated. ... is 4.5 percent and the expect 8. Calculating WACC ...

Payout stock price, calculate ratios, growth rate, merger facts. ... a fixed debt ratio but issues no equity. ... Income Statement 2006 Sales=2,000 Cost=1,500 Net Income ...

Calculating WACC to Assess Projects. ... Solution describes the steps to calculate WACC in the given cases ... Weight of common equity=wc= 60% Cost of equity=rc= 12.50%. ...

... b) Calculate the next expected dividend per share, D1 ... c) What is the cost of equity, R8, for ... Various questions on calculating dividend shares, stock valuations ...

... The solution assists with calculating final payoffs. ...Calculate a. The expected return. ... Is this cost of capital useful for valuing Weston's projects? ...

...Calculate the current expected price of the stock. ... EPS $1.43 Net Earning $1,425,000.00 Stockholder's Equity $20,000,000.00 Cost of Equity 9.7800 ...