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26 February, 13:20

Ronald's Fast Food just paid their annual dividend of $1.05 a shareThe stock has a bela of 1.6. The return on the US Treasury bill (risk-free rate) is 8 percent the expected retum on the market is 15 percent What the cost of equity

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  1. 26 February, 14:06
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    19.2 %

    Explanation:

    Using the Capital Asset Pricing Model we can simply input the given information.

    Formula

    Cost of Equity = Rf + B * (Mr - Rf) where,

    Rf = Risk free rate = T-Bill rate

    B = Beta

    Mr = Market return

    so,

    Cost of Equity = 8 + 1.6 * (15-8)

    = 19.2 %
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