Question

**Cost of Equity: CAPM**

Booher Book Stores has a beta of 0.7. The yield on a 3-month T-bill is 3% and the yield on a 10-year T-bond is 7%. The market risk premium is 7.5%, and the return on an average stock in the market last year was 14%. What is the estimated cost of common equity using the CAPM? Round your answer to two decimal places.

Answer #1

Here 14% market return last year is irrelevant because it is just one observation.

Here Risk free rate of return is used in CAPM model is should be matched with the maturity of the investment being examined.Since stocks are considered as a long term investment, so we can use long term risk free rate in cost of equity.

Here Rf = 7%

Beta = 0.7, Market risk premium = 7.5%

Cost of equity under CAPM approch = Rf + Beta * Market risk premium

= 0.07 + 0.7 * 0.075 = 0.1225

Cost of equity under CAPM approch = 12.25%

Cost of Equity: CAPM Booher Book Stores has a beta of 0.6. The
yield on a 3-month T-bill is 3% and the yield on a 10-year T-bond
is 7%. The market risk premium is 6.5%, and the return on an
average stock in the market last year was 13.5%. What is the
estimated cost of common equity using the CAPM? Round your answer
to two decimal places.

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Stores has a beta of 1.2. The yield on a 3-month T-bill is 3% and
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5.5%, and the return on an average stock in the market last year
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CAPM? Round your answer to two decimal places.
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$2.25), and the dividend is expected to grow at a constant rate of
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Netflix common stock has a beta, b, of 0.6. The
risk-free rate is 6 %, and the market return is 12%.
a. Determine the risk premium on Netflix common stock.
b. Determine the required return that Netflix common stock
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c. Determine Netflix's cost of common stock equity using the
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common stock has a? beta, b?, of 1.7. The? risk-free rate
is 3 %, and the market return is 6?%.
a.??Determine the risk premium on? J&M
common stock.
b.??Determine the required return that? J&M
common stock should provide.
c.??Determine? J&M's cost of common
stock equity using the CAPM.
a.??The risk premium on? J&M common stock
is ?%? ?(Round to one decimal? place)
b.??The required return that? J&M common
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Barton Industries estimates its cost of common equity by using
three approaches: the CAPM, the bond-yield-plus-risk-premium
approach, and the DCF model. Barton expects next year's annual
dividend, D1, to be $1.90 and it expects dividends to
grow at a constant rate g = 5.2%. The firm's current common stock
price, P0, is $25.00. The current risk-free rate,
rRF, = 4.5%; the market risk premium, RPM, =
6.2%, and the firm's stock has a current beta, b, = 1.35. Assume
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estimates its cost of common equity by using three approaches: the
CAPM, the bond-yield-plus-risk-premium approach, and the DCF model.
Barton expects next year's annual dividend, D1, to be
$2.20 and it expects dividends to grow at a constant rate g = 3.6%.
The firm's current common stock price, P0, is $22.00.
The current risk-free rate, rRF, = 4.8%; the market risk
premium, RPM, = 6.1%, and the firm's stock has a current
beta, b, = 1.2....

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CAPM, the bond-yield-plus-risk-premium approach, and the DCF model.
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The firm's current common stock price, P0, is $30.00.
The current risk-free rate, rRF, = 5%; the market risk
premium, RPM, = 6.3%, and the firm's stock has a current
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