contestada

The common stock of Detroit Engines has a beta of 1.34 and a standard deviation of 11.4 percent. The market rate of return is 11.5 percent and the risk-free rate is 4 percent. What is the firm's cost of equity?
A. 10.05 percent
B. 12.98 percent
C. 14.05 percent
D. 15.50 percent
E. 15.67 percent

Respuesta :

Answer:

The firm's cost of equity is C. 14.05 percent

Explanation:

Hi, we need to use the following formula in order to find the cost of equity of this firm.

[tex]r(e)=rf+beta(rm-rf)[/tex]

Where:

r(e) = Cost of equity

rf = risk free rate

rm = Market rate of return

Everything should look like this.

[tex]r(e)=0.04+1.34(0.115-0.04)=0.1405[/tex]

So, this firm´s cost of equity is 14.05%

Best of luck

Otras preguntas