Question

JaiLai Cos. stock has a beta of 0.7, the current risk-free rate is 6.3 percent, and the expected return on the market is 14 percent. What is JaiLai’s cost of equity

Answer 1

Answer - cost of equity = 11.69%

Reason - This question can be solved using Capital asset price model formula, which is as follows -

Cost of equity = risk free rate + beta ( market return - risk free rate )

Cost of equity = 6.3% + 0.7 ( 14% - 6.3% )

Cost of equity = 6.3% + 0.7 * 7.7%

Cost of equity = 6.3% + 5.39%

Cost of equity = 11.69%

If the solution helped, please give it a thumbs up. It keeps us motivated to work for you. In case of any queries use comment box. Will revert back asap. Thank you.