When the risk-free return is 3.5%, what is the cost of equity capital for a company whose stock has a his­torical beta factor of 0.92 and the security market indi­cates that the premium above the risk-free rate is 5%?

What will be an ideal response?


Re = 0.035 + 0.92(0.05)
= 0.081 (8.1%)

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