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27 January, 11:15

TJ Co. stock has a beta of 1.45, the current risk-free rate is 5.75, and the expected return on the market is 14 percent. What is TJ Co's cost of equity?

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  1. 27 January, 13:50
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    17.71%

    Explanation:

    For this problem, we will be making use of the Capital Asset Pricing Model (CAPM) equation, as seen below:

    ERi = Rf + β (ERm - Rf)

    ERi = expected return of investment Rf = risk free investment = 5.75% β = beta of the investment = 1.45 (ERm - Rf) = market risk premium = 14% - 5.75% = 8.25%

    ERi = 5.75% + (1.45 x 8.25%) = 5.75% + 11.96% = 17.71%
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Home » Business » TJ Co. stock has a beta of 1.45, the current risk-free rate is 5.75, and the expected return on the market is 14 percent. What is TJ Co's cost of equity?
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